For Indians, the reference they have for gold is beyond its market value. Now there are ways to own gold without its inherent risks or bearing making and wastage charges.
Sovereign Gold bonds are one such alternative, offered by the government of India and RBI. Here, we can own gold in certificate format.
Over the years, the market has witnessed a considerable decline in the demand for physical gold. SGB not only tracks the export- import value of the assets but also ensures transparency at the same time.
SGB are government securities and are considerable safe. Their value is denominated in multiple of grams of gold. SGBs have witnessed a significant increase in investors, with it being considered a substitute for physical gold.
We may consider diversify our portfolio with at least 5%-10% in gold. As a low- risk investment, it is perfect for investors with a medium low risk appetite. Compared to physical gold, where 3% approx. GST and making charges also applicable and even after buying not sure about the purity of gold. And when we sell physical gold generally sold or traded at discount to market value.
Those who do not want to go through the hassles of storing physical gold can opt for SGBs.
This is because it is easy to store in an online demat form and it is quite safe. You can with either mobile App or Website.
Eligibility Criteria
Any Indian resident – individuals, Trusts, HUFs, charitable institutions, and universities
– can invest in SGB.We may also invest on behalf of a minor.
The value of the bonds is assessed in multiples of gram(s) of gold, wherein the basic unit is 1 gram. The minimum initial investment is 1 gram of gold, and the upper limit is 4 Kg of gold per investor (individual and HUF). For entities such as trusts and universities, 20 Kg of gold is permissible.
The maturity period of the sovereign gold bond is eight years. However, we can choose to exit the bond from the fifth year (only on interest payout dates). However, these bonds get listed on stock exchange we can sell even after approx. 1 months.
The current interest rate for SGB is 2.50% per annum on your initial investment. It is paid twice a year (semi-annually). Returns are usually linked to the current market price of gold.
For Example ….In year 2020-21 when you buy 100 gm gold @50,000 per 10 gram so total purchase value Rs. 5 lac and interest receivable annually @2.5% I.E.12500. If you hold SGB for 8 years total interest receivable 12500*8=1LAC. If 8th year gold market price appreciated to 80,000 per 10 gram , so our portfolio value will be 8 lacs and entire 3 lacs gain will be tax free. Total profit 4lac (1 lac Interest +3 lac price appreciation).
Only RBI can issue SGBs on the behalf of the Central Government and they are traded on the Stock Exchange. It is issued in multiples of one gram of gold. Investors will receive a Holding Certificate for it. We can also convert it to Demat form.
The interest on Sovereign Gold Bonds is taxable as per the provisions of the IT Act, 1961. In the case of SGB redemption, the capital gains tax applicable to an individual is exempted. Also, long-term capital gains generated are offered indexation benefits to an investor or when transferring the bond from one person to another.
Absolute Safety
Sovereign Gold Bonds are quite safe compared to physical gold. Physical gold has many disadvantage. There are no hefty designing or wasting charges here in SGB like in physical gold. Moreover, SGBs earn interest, unlike physical gold which is an idle investment.
We can earn a guaranteed annual interest at the rate of 2.50% (on the issue price), this is the most recent fixed rate.
Long term capital gains arising when investors transfer bonds qualify for indexation benefits. There is also a sovereign guarantee on the principal as well as on the interest earned.
Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates.
The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.
| Particulars | Physical gold | Gold ETF | Sovereign Gold Bond |
| Returns/ earnings | Lower than the real return on gold due to making charges | Less than actual return on gold. | More than actual return on gold |
| Safety | Risk of theft, wear and tear | High | High |
| Purity | The purity of gold always remains a question | High as it is in electronic form | High as it is in electronic form |
| Annual Fixed Interest Income | No | No | Yes 2.5% fixed Interest is Receivable for 8 yrs. period. Apart from gold market value |
| Gains | LTCG after three years | Long term capital gain post after three years | LTCG post three years (No capital gain tax if redeemed after maturity) |
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