Why Investment in sovereign gold bond scheme (SGBs) is better option than to invest in Physical Gold.
Now, when we talk about the investment in Physical Gold it is quite important to know the other options as available to invest in gold that is the SGBs. Investing in physical gold had been a traditional approach that investors usually use to invest spare money in buying the gold in physical form like in bars, coins , jewellery, etc. which is now suggested to get replaced with the new approach of investing in SGBs.
There are various benefits associated with investing money in SGBs instead of physical gold which we later conclude after knowing what exactly the Sovereign gold bonds scheme is about.
RBI launches Sovereign gold bonds scheme (SGB) FY 2020-21 on behalf of Government of India. SGBs are government securities denominated in grams of gold and are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. This gold bond scheme opens six times a year.
|S. No.||Tranche||Date of Subscription||Date of Issuance|
|1.||2020-21 Series I||April 20-24, 2020||April 28, 2020|
|2.||2020-21 Series II||May 11-15, 2020||May 19, 2020|
|3.||2020-21 Series III||June 08-12, 2020||June 16, 2020|
|4.||2020-21 Series IV||July 06-10, 2020||July 14, 2020|
|5.||2020-21 Series V||August 03-07, 2020||August 11, 2020|
|6.||2020-21 Series VI||Aug.31-Sept.04, 2020||September 08, 2020|
These Bonds are launched with the objective of reducing the demand for physical gold purchased for investment purpose that is to ultimate bring a sharp down in import of gold that would result in maintaining the country’s current account deficit within sustainable limit.
Here’s all the details that you need to know about the Sovereign Gold Bonds 2020-21 scheme:
1. Who is eligible to invest in SGBs?
Residents in India as defined under the Foreign Exchange Management Act, 1999, are eligible to invest in SGB. Individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions are also eligible. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption or maturity.
2. Is joint holding allowed?
Yes, joint holding is allowed.
3. Can the investment be made by the minor in SGB?
Yes. The application on behalf of the minor has to be made by their guardian.
4. Where can investors get the application form?
The application form will be provided by the issuing banks, Stock Holding Corporation of India (SHCIL) offices, designated post offices and agents. It can also be downloaded from RBI’s website. Banks may also provide online application facility.
5. Can an investor hold more than one investor ID for subscribing to the Sovereign Gold Bond?
No. An investor can have only one unique investor ID linked to any of the prescribed identification documents. The unique investor ID is to be used for all the subsequent investments in the scheme. For holding securities in dematerialised form, quoting of PAN in the application form is mandatory.
6. What are the minimum and maximum limit for investment?
The minimum investment in the bond shall be one gram with a maximum limit of subscription of 4kg for individuals, 4kg for HUF and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April-March). In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by the government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other financial institutions.
7. Can each member of my family buy 4Kg in their own name?
Yes, each family member can buy the bonds in their own name.
8. Can an investor/trust buy 4kg/20kg worth of SGB every year?
Yes. An investor/trust can buy 4kg/20kg worth of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.
9. Is the maximum limit of 4kg applicable in case of joint holding?
The maximum limit will be applicable to the first applicant in case of a joint holding for that specific application.
10. What is the rate of interest and how will it be paid?
The bonds bear interest at the rate of 2.50% (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
11. Who are the authorised agencies selling SGBs?
Bonds are sold through offices or branches of nationalised banks, scheduled private banks, scheduled foreign banks, designated post offices, SHCILs and the authorised stock exchanges either directly or through their agents.
12. At what price are the bonds sold?
The nominal value of gold bonds shall be in Indian rupees fixed on the basis of simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited for the last three business days of the week preceding the subscription period.
13. Will RBI publish the rate of gold applicable every day?
The price of gold for the relevant tranche will be published on RBI website two days before the issue opens.
14. Can I apply online?
Yes. A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the gold bonds will be Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
15. How will I get it redeemed ?
On maturity, the gold bonds shall be redeemed in Indian rupees and the redemption price shall be based on a simple average of the closing price of gold of 999 purity of previous three business days from the date of repayment, published by the India Bullion and Jewellers Association Limited. Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.
16. Can I encash the bond anytime I want? Is premature redemption allowed?
Though the tenor of the bond is 8 years, early encashment or redemption of the bond is allowed after the 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.
17. What do I have to do if I want to exit my investment?
In case of premature redemption, investors can approach the concerned bank, SHCIL offices, post office or agent 30 days before the coupon payment date.
Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.
18. What are the procedures involved during redemption?
• The investor will be advised one month before maturity regarding the ensuing maturity of the bond.
• On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record.
19. What if there is change in communication details ?
In case there are changes in any details, such as account number, email ids, then the investor must intimate the bank, SHCIL or PO promptly.
20. Can I gift the bonds to a relative or friend on some occasion?
The bond can be gifted or are transferable to a relative/friend/anybody who fulfils the eligibility criteria. The bonds shall be transferable in accordance with the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity by the execution of an instrument of transfer which is available with the issuing agents.
21. Can I use these securities as collateral for loans?
Yes, these securities are eligible to be used as collateral for loans from banks, financial institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Granting loan against SGBs would be subject to the decision of the bank/financing agency, and cannot be inferred as a matter of right.
22. Is tax deducted at source (TDS) applicable on the bond?
TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.
23. What are the tax implications on interest and capital gain?
Interest on the bonds will be taxable as per the provisions of the Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.
24. Is a nomination facility available for these investments?
Yes, nomination facility is available as per the provisions of the Government Securities Act 2006 and Government Securities Regulations, 2007. A nomination form is available along with application form.
25. What are the payment options for investing in the Sovereign Gold Bonds?
Payment can be made through cash (upto Rs 20,000)/cheques/demand draft/electronic fund transfer.
26. Can I get the bonds in Demat form?
Yes. The bonds can be held in Demat account. A specific request for the same must be made in the application form itself. The facility for conversion to Demat will also be available subsequent to allotment of the bond.
27. Can I trade these bonds?
The bonds are tradable from a date to be notified by RBI. (It may be noted that only bonds held in Demat form with depositories can be traded in stock exchanges).
28. Can I get part repayment of these bonds at the time of exercising put option?
Yes, part holdings can be redeemed in multiples of one gram.
• Investing in SGBs are more protected and profitable as the investor will get the on going market price at the time of redemption or premature redemption.
• Moreover the pockets of investors will also get filled with the periodical interest which is of course an additional benefit.
• Like physical gold there is no deduction on account of making charges and lack of purity.
• No extra cost shall be incurred on account of protecting the asset like locker charges, etc.
• Tax benefits on account of redemption as stated above.