Sovereign Gold Bond: A lucrative investment option

Sovereign Gold Bonds (SGBs) are the government securities denominated in grams of gold. These are issued by Reserve Bank of India on behalf of Government of India. SGBs are the perfect alternate to physical gold. The Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents. If the application is made online, Discount of Rs. 50 is given to the investors.

Eligibility Criteria:

All resident persons including individuals, HUFs, trusts, universities and charitable institutions are eligible to invest in SGBs scheme. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till its redemption or maturity.

Investment limit:

These SGBs are issued in denomination of one gram of gold and in multiple thereof. So minimum investment is one gram which can go to maximum 4 kgs of gold for individual and HUF and 20 kgs for trusts and similar entities notified by the government from time to time. The limit of 4 kg is applicable to one applicant meaning that each member of family can hold 4 kgs of gold in his/ her name. In case of joint application, the limit applies to the first applicant.

Benefits of investing in SGBs:

• Risk of theft is eliminated in case of SGBs as contrary to the physical gold which is more prone to theft.
• It does not carry any storage cost
• These Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest is credited half yearly to the bank account.
• Unlike physical gold, making charges are not levied.
• Purity is very high as it in electronic mode
• GST is not levied in case of SGBs
• These bonds can be gifted or transferred to a relatives/friends/persons who fulfill the eligibility criteria as mentioned above.
• The SGBs can be used as collateral for bank loans

Risks associated with SGBs:

There may be a risk of capital loss if the market price of gold declines. However, the investors do not lose in terms of the units of gold which they have paid for.

Redemption:

The tenor of the bond is 8 years, early redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The redemption price shall be determined based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment as reported by the India Bullion and Jewellers Association Ltd.

Tax implications:

Interest income from SGBs are taxable under Income from Other Sources under Income-tax Act, 1961. The capital gains tax arising on redemption of SGBs to an individual has been exempted. The indexation benefits are provided to long terms capital gains arising to any person on transfer of bond. Furthermore sale of SGBs are also outside the purview of GST.

In conclusion, Sovereign Gold Bonds represent an attractive investment opportunity with numerous advantages over traditional gold ownership. With features like assured purity, interest earnings, exemption from GST, and capital gains tax benefits, SGBs offer investors a secure and hassle-free way to participate in the gold market. As a regulated investment instrument backed by the Indian government, SGBs provide peace of mind along with the potential for long-term wealth appreciation.