Gold is deeply rooted in Indian culture as a symbol of wealth and a safeguard against financial unpredictability. As the appetite for gold investments expands, Sovereign Gold Bonds (SGBs) emerge as a compelling investment option. SGBs are backed by the government and offer a secure alternative to physical gold ownership. Let's understand what is the Sovereign Gold Bond scheme.
What is a Sovereign Gold Bond?
A Sovereign Gold Bond is a government-backed investment option denominated in grams of gold. The government issues SGBs through the Reserve Bank of India (RBI). These bonds serve as substitutes for holding physical gold.
Who can invest in Sovereign Gold Bonds?
Now that you know what is sovereign gold bond’s meaning, let's understand who can invest in them. SGBs are open to investment by various entities, including
- Individuals
- Hindu Undivided Families (HUFs)
- Trusts
- Universities
- Charitable institutions
Sovereign Gold Bond interest rate
SGBs offer a fixed interest rate, typically around 2.5% per annum. This interest is paid semi-annually, providing you a regular income stream and the potential capital appreciation of the underlying gold price.
Price of Sovereign Gold Bond
The price of SGBs is directly linked to the prevailing market price of gold on the issuance date. This allows you to benefit from upward movements while mitigating physical gold storage and security risks.
Limit of Sovereign Gold Bond investment
For individuals and HUFs, the minimum investment is 1 gram of gold, while the maximum limit per financial year is 4 kg. Trusts and similar entities can invest up to 20 kg of gold through SGBs in a single financial year.
Tax implications on SGBs
If you're an individual holder of SGB, you can redeem them after 8 years and get a tax refund on the entire amount. If you sell Sovereign Gold Bonds on the stock market, whether you have to pay tax on any money you make depends on how long you’ve held the bonds.
Any profits from holding bonds for more than a year are subject to taxation at either 20% after indexation or 10% without it, in addition to any relevant surcharges or taxes. Alternatively, any gain from holding bonds for less than a year would be subject to taxation at the relevant slab rate.
How to buy a Sovereign Gold Bond
You can purchase SGBs through various channels, including authorised banks like Axis Bank's Sovereign Gold Bond scheme, the Stock Holding Corporation of India (SHCIL), and online platforms of participating banks. This widespread availability ensures that SGBs are accessible to investors across the country.
Benefits of investing in SGBs
- Secure investment backed by the government: SGBs are issued by the RBI on behalf of the Government of India, providing high security and confidence in investments.
- Elimination of storage risks and costs: Unlike physical gold, SGBs eliminate the need for secure storage facilities and the associated costs, making them a convenient and cost-effective way to invest in gold.
- Guaranteed purity and liquidity: SGBs are backed by the government's assurance of purity. You can trade them on stock exchanges after a one-year holding period, ensuring liquidity.
- Regular interest income: The fixed interest rate offered on SGBs provides you with a steady income stream and potential capital appreciation.
- Tax benefits on maturity: SGBs are exempt from capital gains tax if held until maturity, making them a tax-efficient investment option.
Features of Sovereign Gold Bonds
- Updated price: The issue price of SGBs is determined based on the latest gold price, ensuring that you are exposed to the current market value of the precious metal.
- Premature withdrawal: You can exit the SGB investment after the 5th year, subject to certain conditions, thus providing flexibility.
- Fixed tenure: SGBs have a fixed maturity period of 8 years, allowing you to plan your investment horizons accordingly.
- Quantity of subscription: You can subscribe to SGBs in denominations of grams of gold, with the maximum investment being 4 kg.
- Resale: After a one-year holding period, SGBs can be traded on stock exchanges, providing you liquidity and an exit option.
- Periodic interest pay-outs: You receive semi-annual interest payments, offering a regular income stream.
SGB maturity
An 8-year term is associated with Sovereign Gold Bonds. You get a notice of the maturity date 30 days before the bond's expiration date. Your bank account is credited with the maturity proceeds on the day of maturity.
Who should consider investing in Sovereign Gold Bonds?
- Individuals seeking a safe haven for gold investment: SGBs provide exposure to gold without the hassles of physical ownership, making them ideal for investors seeking a secure way to invest in the precious metal.
- Investors looking for regular income with capital appreciation potential: The fixed interest rate and potential capital appreciation make SGBs appealing for investors seeking income and growth.
- Those seeking tax-efficient investment options: The exemption from capital gains tax at maturity makes SGBs a tax-efficient investment choice.
Also Read: Know the pros and cons of investing in Sovereign Gold Bonds
Conclusion
Sovereign Gold Bonds provide a compelling investment avenue for Indian investors seeking exposure to gold. These government-backed instruments offer the dual benefits of potential capital appreciation from gold price movements and regular interest income.
Sovereign Gold Bonds present a unique and advantageous opportunity worth considering if you are looking to diversify your portfolio and gain exposure to the precious metal market securely and conveniently.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
