Investing in Gold the wise way: Exploring Sovereign Gold Bonds

Investing in Gold the wise way: Exploring Sovereign Gold Bonds- FYLLO

Gold holds a significant cultural, social, and economic value in Indian society, and purchasing gold is a deeply ingrained tradition. Indians have a long-standing affinity for gold, stemming from cultural beliefs, religious rituals, and historical practices.

For the wise who want to buy Gold as a form of investment, Sovereign Gold Bonds are a good option, wherein one can purchase government securities denominated in grams of gold instead of purchasing and holding physical gold. This bond is issued by the RBI on behalf of the Government. Let’s explore the details of Sovereign Gold Bonds.

 

Features of Sovereign Gold bonds:

 

Period of availability: The Government launches the Sovereign Gold Bonds in 4 tranches every year. The Bond is open for purchase for a couple of days during every launch. The last and final tranche for the fiscal (April-March) year 2023-24 was open for subscription from February 12, 2024, till February 16, 2024.

Tenor of Bond: The sovereign gold bonds are issued for a tenor of 8 years, while investors have the option for premature redemption after 5 years.

Purchase Limits: A minimum of 1 gram shall be purchased to a maximum of 4 kg per individual/HUF and a maximum of 20 kg per trusts/entities.

Interest: The bond bears an annual interest of 2.50 percent on the amount of initial investment. The interest will be credited semi-annually to the bank account of the investor. Price of the Bonds: The value of gold bonds shall be fixed based on the simple average of the closing price of gold 999 purity of 3 business days from the week before the subscription period. The price of one unit of Sovereign gold bonds for the IV tranche of 2023-24 in February was calculated at Rs. 6263. A discount of Rs.50 per gram/unit will be offered if purchased through online mode, hence effectively Rs.6213 was the price per unit for online payments in the VI tranche of 2023-24.

 

Benefits of investing in Sovereign Gold Bonds:

 

1. No risk of storage: Unlike physical gold where costs and risk are involved in storing the physical gold, in Sovereign gold bonds such risks and costs involved in storage are eliminated.

2. NO Making Charges & GST:  No making charges or GST is added to the cost of Sovereign Gold bonds, hence making it a much more profitable investment in comparison to physical gold.

3. Additional interest of 2.5%:  An interest of 2.5% per annum is credited to the bank account of the investor semi-annually which is an added advantage apart from the rise in gold prices.

4. Tax Exemption: Although the interest of 2.5% is taxable, the capital gains arising on redemption of bonds at maturity are exempted to an individual.

5. Loan Collaterals: These securities are eligible to be used as collateral for loans from banks, financial institutions, and NBFCs.

 

FAQS on Sovereign Gold bonds

 

1. When can one purchase Sovereign Gold Bonds?

Sovereign Gold bonds will be open for purchase 4 times every year, the government launches 4 tranches of SGB every fiscal year (April- March) and the bond shall be open to subscription for a couple of days during a tranche. The dates of the tranche will be announced in advance and the price per unit of the bond will be fixed a few days prior.

2. Where to buy Sovereign Gold Bonds?

The Sovereign Gold bonds can be purchased through banks, designated post offices, SHCIL and recognized stock exchanges.

3. How to sell Sovereign Gold Bonds after maturity?

On maturity, the gold bonds will be redeemed in Indian Rupees and the redemption price will be a simple average of gold of 999 purity of the previous 3 business days from the date of repayment. Both redemption proceeds and interest will be credited to the bank account of the investor.

4. Can sovereign gold bonds be sold before maturity?

Yes, the Sovereign Gold bonds can be sold before maturity after 5 years from the date of issue on coupon payment dates.

5. Are Sovereign Gold Bonds a good investment?

Yes, Sovereign Gold bonds are a good investment in comparison to holding physical gold, as they offer tax exemption on maturity proceeds, and also the risk and costs involved in the storage of physical gold are eliminated. Also, an additional interest of 2.5 % per annum is offered with the bond.

6. Can a NRI buy or invest in Sovereign Gold bonds?

No, NRIs – Non-resident individuals are not eligible to purchase Sovereign Gold bonds from India. However, individual investors who have become non-residents after the purchase of SGB can continue to hold the bonds till early redemption or maturity.

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