Issued by the Government
SGBs are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The bonds are denominated in grams of gold with a minimum investment of one gram.
Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) are financial instruments issued by the Government of India, allowing individuals to invest in gold without the need to physically own it. Here are some key points about Sovereign Gold Bonds in India:
Types of Sovereign Gold Bonds
Interest-bearing Bonds
Apart from the potential for capital appreciation based on the prevailing market price of gold, SGBs also offer a fixed rate of interest on the initial investment amount. The interest is paid semi-annually and is taxable.The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment.
Tenure and Liquidity
SGBs have a tenure of eight years with an option to exit after the fifth year. The bonds are also tradable on stock exchanges, providing liquidity to investors who wish to sell them before maturity.
Tax Benefits
Capital gains arising from the transfer of SGBs are exempt from capital gains tax if held till maturity. Additionally, the indexation benefit is provided to long-term capital gains arising from the transfer of SGBs..
Subscription Periods
The government periodically opens subscription windows for SGBs, during which investors can apply for the bonds through designated banks, Stock Holding Corporation of India Ltd. (SHCIL), designated post offices, or through their demat accounts.z
Security
SGBs are backed by the Government of India, making them a relatively safe investment option compared to physical gold.
No Physical Possession
Since SGBs are held in electronic form, investors do not have to worry about the storage and security concerns associated with physical gold.
Interest Rates
The interest rates on SGBs are announced by the government prior to each subscription period and are generally linked to the prevailing market rates.
Gold Price Fluctuations
While SGBs offer protection against risks associated with physical gold like theft and impurity, they are still subject to fluctuations in the price of gold in the market.
Redemption and Exit Options
Investors have the option to redeem the bonds prematurely after the lock-in period of five years, with the redemption price based on the prevailing market price of gold. There's also a provision for premature redemption for senior citizens after the lock-in period, under certain conditions.
SGBs provide a convenient and efficient way for individuals to invest in gold while also earning interest on their investment. However, investors should consider their investment objectives, risk tolerance, and tax implications before investing in SGBs.
