Sovereign Gold Bonds (SBG) Scheme

Sovereign Gold Bonds (SGBs) Scheme is a financial scheme launched by the Government of India to provide an alternative to purchasing physical gold. It allows individuals to invest in gold in a non-physical form. Under this scheme, investors can buy bonds issued by the Reserve Bank of India (RBI) that are backed by physical gold. The minimum investment in SGBs is 1 gram of gold, and the maximum limit is 4 kg for individuals, 4 kg for Hindu Undivided Families (HUFs), and 20 kg for trusts and similar entities. (Let’s see Mutual fund Investment article)

Gold Bond as a Investment

SGBs offer a safe and secure investment option for individuals looking to invest in gold without the hassles of storage and security concerns associated with physical gold. SGBs offer a fixed interest rate of 2.5% per annum, payable semi-annually, on the initial investment amount. They also provide a capital appreciation based on the market price of gold at the time of redemption. SGBs have a tenure of 8 years, with an exit option available after the fifth year. They are traded on stock exchanges, providing investors with liquidity.

Feature

The Sovereign Gold Bond (SGB) Scheme is a government-backed investment scheme that allows individuals to invest in gold in a paperless, electronic form. Here are some of the features of the Sovereign Gold Bond Scheme:

1. Guaranteed returns: The Sovereign Gold Bond Scheme offers a fixed rate of interest of 2.5% per annum on the initial investment amount.
2. Denomination: The bonds are issued in denominations of 1 gram of gold, which means that you can buy gold in small amounts.
3. Long-term investment: The tenure of the bond is 8 years with an option to exit after the 5th year. This makes it an ideal long-term investment option for investors who want to diversify their portfolio.
4. Liquidity: Sovereign Gold Bonds are listed on the stock exchange, and you can trade them on the exchange. This provides liquidity to investors who want to exit their investment before the maturity period.
5. Tax benefits: Interest earned on the Sovereign Gold Bond Scheme is taxable as per the individual’s tax slab. However, there is no capital gains tax on redemption of the bond. Additionally, there is no wealth tax on investment in Sovereign Gold Bonds.
6. Security: The bonds are issued by the Reserve Bank of India (RBI) on behalf of the government of India, making them one of the safest investment options.
7. KYC: The Know Your Customer (KYC) requirements for investing in Sovereign Gold Bonds are minimal, making it easy for investors to invest in gold.

Overall, the Sovereign Gold Bond Scheme is a safe, convenient, and tax-efficient way to invest in gold.

Need

The Sovereign Gold Bond (SGB) scheme was launched by the Government of India in 2015 to provide an alternative mode of investment in gold. The scheme allows investors to invest in gold without actually owning physical gold.

Here are some reasons why the Sovereign Gold Bond Scheme was introduced:

1. Encouraging Financial Savings: The Sovereign Gold Bond scheme is aimed at encouraging financial savings and reducing the demand for physical gold. It provides an opportunity for investors to invest in gold in a convenient and secure manner.
2. Reducing Current Account Deficit: India is one of the largest importers of gold in the world. The import of gold leads to a huge outflow of foreign exchange, which can cause a current account deficit. The Sovereign Gold Bond scheme helps in reducing the import of gold and hence helps in reducing the current account deficit.
3. Reducing Dependence on Physical Gold: Investing in physical gold has its own set of risks and challenges such as storage, theft, and purity. The Sovereign Gold Bond scheme allows investors to invest in gold without having to worry about these risks and challenges.
4. Providing Interest: The Sovereign Gold Bond scheme provides an interest rate of 2.5% per annum on the investment amount. This makes it an attractive investment option for those looking to invest in gold.

Application Procedure

The application procedure for Sovereign Gold Bonds Scheme is as follows:

1. The bonds are issued by the Reserve Bank of India on behalf of the Government of India. The issue price of the bond is fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited (IBJA), for the last 3 working days of the week preceding the subscription period.
2. The Sovereign Gold Bonds can be purchased through scheduled commercial banks, designated post offices, stock exchanges (BSE and NSE), and the Stock Holding Corporation of India Limited (SHCIL).
3. Investors need to fill in the application form, which is available with the issuing banks or can be downloaded from the RBI website. The application form requires investors to provide details such as name, address, PAN, bank details, and the amount of investment.
4. The application form along with the required documents and payment needs to be submitted to the issuing bank or designated post office or the stock exchange or the SHCIL.
5. On successful subscription, the bonds will be credited to the investor’s account in the form of a holding certificate, which is equivalent to a paper bond.
6. The Sovereign Gold Bonds are issued in tranches and the subscription period for each tranche is usually open for a period of 5-7 days.
7. Investors can also buy or sell the Sovereign Gold Bonds on the stock exchanges, but only after a certain lock-in period. The lock-in period for these bonds is 5 years from the date of issuance, after which investors can sell or trade the bonds on the exchanges.

Conclusion

Overall, the Sovereign Gold Bond scheme is a good investment option for those looking to invest in gold in a convenient, secure, and risk-free manner. It is important to note that the Sovereign Gold Bonds Scheme is open to resident individuals, HUFs, trusts, universities, and charitable institutions. Non-resident Indians (NRIs) are also eligible to invest in these bonds.