Sovereign Gold Bonds

Sovereign Gold Bonds (SGBs) have gained immense popularity over the past few years. Since gold prices are inversely related to stock market fluctuations, SGBs act as an excellent hedging and diversification tool. Moreover, they allow individuals to invest in gold without the necessity of possessing it physically.

Benefits can be multiplied, and the investment process can be streamlined if investors invest in SGBs through KredX. The online platform ensures a hassle-free digital process and helps diversify the portfolio profitably and securely.

Read on to know the definition, features, and advantages of Sovereign Gold Bonds.

What Are Sovereign Gold Bonds?

Under the Gold Monetisation Scheme, GOI launched Sovereign Gold Bonds in November 2015. SGBs refer to government securities that are denominated in grams of gold. They essentially substitute for holding physical gold.

The Reserve Bank of India issues such bonds on behalf of the Indian government. In consultation with GOI, RBI opens a window for subscription in tranches, and RBI notifies the terms and conditions for it from time to time.

Investors willing to subscribe to Sovereign Gold Bonds must pay the issue price in cash and redeem the bonds in cash upon maturity. Moreover, they can hold such bonds in Demat or paper format, per their suitability.

What Are The Features Of Sovereign Gold Bonds?

Some of the salient features of Sovereign Gold Bonds include:

  • Denominations: Sovereign Gold Bonds are issued in denominations of grams with a basic unit of 1 gram. The flexibility of investing in as low as 1 gram enables investors with a wide range of options per their suitability.
  • Tenor: Sovereign Gold Bonds come with a tenor of 8 years with three exit options in the 5th, 6th, and 7th year on the date of the interest pay-outs only.
  • Investment Limit: As stated earlier, the minimum investment limit is 1 gram of gold. However, the maximum investment limit varies with different investor categories. The upper limit of investment is set at 4kg for individuals, 4kg for HUF, and 4kg for trust and equivalent entities in each fiscal as notified by the Government of India from time to time. However, in joint holding, the investment limit is set at 4kg for the first applicant only.
  • Eligibility: Investors willing to participate in the Sovereign Gold Bond scheme must fulfil certain eligibility criteria, as shown in the table below.

Sovereign Gold Bonds Eligibility Criteria 

Indian Resident – Residents of India, as defined under the Foreign Exchange Management Act 1999, are eligible to invest in the Sovereign Gold Bond scheme.

Individuals/Groups Individuals, associations, HUFs (Hindu Undivided Family), trusts, universities, and charitable institutions are eligible to invest in this scheme.  

  • Documentation: To purchase Sovereign Gold Bonds, investors need to submit a list of documents, including a PAN Card (mandatorily), passport, and voter’s ID, among others.
  • Interest Rate: SGBs feature a fixed coupon rate of 2.50% per annum, payable semi-annually to investors. The returns are associated with the market price of gold.
  • Redemption Price: The redemption price of Sovereign Gold Bonds is published in INR and based on the average closing price of 999 gold as published by IBJA (India Bullion and Jewellers Association).
  • Payment Options: Investors can make the payment for SGB through various options such as cash – up to Rs. 20000 – demand draft, cheques, or electronic fund transfer.

What Are The Advantages Of Sovereign Gold Bonds?

The advantages of investing in Sovereign Gold Bonds are manifold. These include:

Low Risk: Sovereign Gold Bonds is one of the safest forms of investments due to their government backing. Hence, the chances of default on repayment are zero.

Decent Return: As gold prices tend to rise in the long run, Sovereign Gold Bonds guarantee moderate to significant returns even in bearish market conditions.

Tax Benefits: Per the IT Act, 1961, interest earnings from Sovereign Gold Bonds are taxable. However, investors can avail tax exemption on capital gains upon redeeming gold bonds.

Indexation Benefits: Investors are privy to indexation benefits if they choose to transfer the bond before the maturity period.

Trade Benefits: SGBs can be traded in the National Stock Exchange or Bombay Stock Exchange after the completion of five years.

Collateral: SGBs can be used as collateral or security to avail loans from authorised financial institutions per the RBI prescribed LTV.

Hedges Against Inflation: Historically, gold prices have trumped inflation to provide stability during highly volatile market conditions.

Investors looking for low-risk and high-return investment instruments can consider Sovereign Gold Bonds as a haven. Furthermore, they can be assured of a safer investment environment when choosing KredX. This online marketplace ensures a seamless digital process and a chance to diversify your portfolio.

Frequently Asked Questions:

A. Yes, a minor can invest in SGB. However, the guardian has to apply on behalf of the minor.