What is Sovereign Gold Bond (SGB)
Sovereign gold bonds are government securities issued by the Reserve bank of India (RBI). These bonds are alternative to holding physical gold. These are dominated in grams of gold and are fully secured as these are issued by RBI on behalf of the government.
Characteristics of Sovereign Gold Bond (SGB)
1) Updated price- Prices of a sovereign gold bond 2020 is calculated through a simple average of the closing prices of 999 purity gold for the last 3 days set by the Indian Bullion and Jewellers Association Limited
2) Periodic interest pay-out- these bonds come with an interest payment of 2.5%pa which is distributed to its investor’s half-yearly
3) Fixed maturity- these bonds come with a fixed maturity period of 8 years, with a premature withdrawal permissible from the 5th year.
4) Resale- The Sovereign gold bond scheme can be traded in the secondary market after 14 days from the initial subscription date. The price of this bond will be decided based on the prevailing gold rates, and its corresponding demand and supply on the stipulated date. Therefore, the holding certificate needs to be digitised and stored in Demat form.
5) Quantity- Investments in SGBs are done in grams of gold. SGB allows a minimum investment of 1 gram and a maximum of 4Kg for individuals and HUFs. The maximum limit for Corporations is 20Kg.
Advantages of Sovereign Gold Bond (SGB)
1) Very low risk- A sovereign gold bond is issued following the Government Security Act of 2006 by the Reserve Bank of India, on behalf of the central government. These government-backed securities have 0 default risk, the only risk that exists is price fluctuation due to gold rates and forces of demand and supply.
2) Extra Income- You earn an extra 2.5% on the issue price, this is the most certain fixed rate.
3) Tradability- you can trade these securities on the NSE and BSE after a certain period of time.
4) Collateral- Few banks and lending institutions also accept SGBs as collateral/security against a loan.
5) Tax benefit- No TDS is applicable on interest Indexation benefit if the bond is transferred before maturity. If the bond is held till maturity, it is exempted from Long term capital gain.
Comparison between all kinds of Gold Investment opportunities available
Cost-Return Analysis of all gold products available for Investment-
How and where can you buy Sovereign Gold Bonds (SGB)
RBI opens a window for investment in different tranches. Each tranche is open for subscription for 5 days. During these 5 days, you can purchase these bonds from commercial banks, designated post offices (as may be notified by the RBI), recognized stock exchanges which are NSE, BSE and lastly, Stock Holding Corporation of India Ltd. (SHCIL)
Commercial Banks like SBI, Central banks allow investors to invest in SGBs, few private banks like ICICI Bank, HDFC Bank, Axis Bank etc also offer SGBs to the general public. Below is the list of tranches and their dates available in the current Financial Year-