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Understanding Sovereign Gold Bond

Updated on November 17, 2019 , 772 views

On November’15, Government of India launched the Sovereign Gold Bond (SGB) scheme as an alternative to purchasing physical gold. When people invest in gold Bonds, they get a paper against their investment instead of a gold bar or a gold coin. Sovereign Gold Bonds are also available in the digital & Demat form and can also be used as collateral for loans.

SGB can be sold or traded on stock exchanges. Investors will get returns based on the prevailing gold price.

Sovereign Gold Bond Scheme

The Sovereign Gold Bond scheme is an investment in gold that is issued by the Reserve Bank of India (RBI) on behalf of the Government of India. This scheme aims to reduce the demand for physical gold, thereby keeping a tab on imports of gold in India and utilising resources effectively. It also offers the same benefits as of physical gold. The value of gold bond increases with the market rate of gold.

Investors can either buy these bonds through the Bombay Stock Exchange (BSE) when RBI announces a fresh sale or they can also purchase it at the current price. Upon the maturity, investors can redeem these bonds for cash or can sell it on BSE at current prices.

With the Reserve Bank of India issuing this scheme, there is a high level of trust factor on transparency and safety.

Gold Bond Interest Rate

Gold Bonds are interest-bearing instruments and pay an interest to the buyer. The current interest rate of this scheme is 2.75% per annum, and the interest is paid every six months. This interest rate can be changed by the government as per its policies.

Key Things to Know About Sovereign Gold Bond

  • Minimum investment under this scheme is 1 gram.
  • Maximum investment is 500 grams per person per fiscal year (April-March).
  • The Gold Bond scheme is available in Demat and paper form.
  • The bonds are tradable through stock exchanges – NSE and BSE.
  • The scheme has a tenure of eight years, with exit options from the 5th year.
  • The gold bond can be used as collateral to avail a loan.
  • Gold Bonds are backed by the Government of India, so they are sovereign grade.

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Tax on Gold Bond

The tax on the Sovereign Gold Bond is levied similar to the physical gold. There is no capital gains tax if it is redeemed after 5 years.

The current tax rate of the gold bond is given below. Please do consult a tax advisor before buying gold bonds.

tax-gold-bond

Eligibility for Sovereign Gold Bond Scheme

  • Indian Residents
  • Individuals/Groups – Individuals, associations, trusts, etc. are all eligible to invest in this scheme, provided they are Indian residents
  • Minors – This bond can be purchased by parents or guardians on behalf of minors

Where can you buy SGB Scheme?

Investors can apply for the Sovereign Gold Bond scheme through scheduled commercial banks and designated post offices. They would be authorised to collect the application form and submit to the respective authorities.

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Vikky Gupta, posted on 9 Sep 19 5:18 PM

Clear Picture !

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