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Sovereign Gold Bond Scheme – Should you invest in SGB?

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 Sovereign Gold Bond (SGBs) are government securities denominated in grams of gold that also provides interest of 2.75% p.a. on top of price of gold.

They are substitutes for holding physical gold. The Bond is issued by Reserve Bank on behalf of Government of India.

 

How the Sovereign Gold Bond Scheme works?

  • For each gram of gold, you can buy 1 unit of SGB. The rate is fixed by the government at the time of issuing the bond
  • You will get interest @ 2.75% p.a. Interest is paid every six months.
  • On maturity, you will get the price of gold at that point of time
  • You can purchase a minimum of 2 gms (2 units) and a maximum of 500 gms (500 units) of Gold bonds every financial year
  • The bonds will mature in 8 years. However, the investors have an option to exit after the 5th This means, after 5 years, you will have an option to sell it back to the Government.

Features of the Sovereign Gold Bond Scheme

 

  • Minimum investment of 2 gms (2 units) and a maximum of 500 gms (500 units) every financial year
  • Bonds will be sold through banks and designated post offices. The bonds are available in both paper and demat format. These bonds will be listed on exchanges.
  • Only residents can invest. HUFs and trust can also invest. Non-resident Indians (NRIs) cannot invest in these bonds

Redemption

Redemption at Maturity:  On Maturity date, bonds will be redeemed in cash. You will get the prevailing price of gold which will be average of closing price of gold of 999 purity during the week prior to redemption (as published by IBJA).

 Early redemption (after 5 years) –  the investors have an option to exit after the 5th year. This means, after 5 years, you will have an option to sell it back to the Government.

 Early redemption (before 5 years):  As the sovereign bonds will be listed on stock exchanges. So, theoretically, you can exit before 5 years too depending on the liquidity of these bonds in the secondary market.

Taxation Aspects

 
1) At the time of investment – There is no tax benefit at the time of investment.

2) Interest Income –  Interest Income is taxable as per your tax slab.

3) No Capital Gains Tax – if you hold the bonds till maturity and then redeem the bonds.

4) Capital Gains Tax (in case of early selling) –   If you sell these bonds in the secondary market, you will have to pay capital gains tax. Short term gains (holding period <= 3 years) shall be taxed at the marginal income tax rate (as per income tax slab of the investor). Long Term Capital Gains shall be taxed at 20% less indexation.

Benefits of investing in SGB

  • There is an interest given @ 2.75% p.a. You do not get interest in any other form of gold investment (e.g. physical gold, Gold ETF, Gold Mutual funds etc)
  • No Capital Gains Tax if you hold the bonds till maturity (8 years)
  • Partial withdrawals are allowed after 5 years.

 

Demerits

  • Interest earned is taxable
  • You can invest in these bonds only when these are issued. As of now, these are issued 3 times.
  • Investment is locked for 5 years. You can sell on stock exchange before that but liquidity may not be there.

Should you invest in SGB?

Depending on the requirement, you should choose the type of Investment to be made in gold.

For more details about Sovereign Gold Bond Scheme, please read the

1) Financial Ministry website – https://finmin.nic.in/swarnabharat/sovereign-gold-bond.html

2) RBI Circular

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