Sovereign Gold Bond Scheme 2023-2024 – Reasons to Invest

Recently RBI has announced Sovereign Gold Bond (SGB) and subscription opened on 19yh June 2023 with issue price of 5,926 per gram of gold. In this In this article, we have provided some of the features about the SGB’s. A discount of ₹50 per gram from the issue price to those investors who apply online.  For such investors, the issue price of a Gold Bond will be ₹5,876 per gram of gold.

Sovereign Gold Bonds (SGBs) are financial instruments issued by the Government of India, exactly the Reserve Bank of India (RBI), as a means for persons to invest in gold. Introduced in 2015, SGBs are an alternative to physical gold and offer investors the opportunity to participate in the gold market without actually owning physical gold.

State Bank of India (SBI) has provided some of the reasons you must invest in SGB.

1. Assured returns of 2.5% per annum payable half-yearly.
2. Secure, no storage hassle like physical gold.
3. No Capital Gain Tax on redemption.
4. Can be held in Demat form and is tradable on exchanges.
5. Can be used as collateral for loans also loans available against the SGB certificate.
6. No GST and making charge unlike in physical gold.

Here are some key points to know about Sovereign Gold Bonds:

1. Purpose: The primary objective of SGBs is to reduce the demand for physical gold and divert the investments into a more productive asset class. It aims to deliver an avenue for investors to invest in gold in a convenient and secure manner.
2. Issuance and Tenure: SGBs are issued by the RBI on behalf of the Government of India in tranches throughout the year. The tenor of the bonds is typically 8 years, with an exit option available after the fifth year. The specific terms and conditions of each tranche, including the issue price, interest rate, and maturity date, are announced by the RBI prior to the issuance.

3. Gold Price: The price of the gold bonds is connected to the usual market price of gold. The issue price of the bonds is determined based on the average closing price of gold of 999 purity for the preceding three business days before the subscription period commences. The interest rate on the bonds is fixed, and it is paid semi-annually.

4. Investment Limit: There is a lowest investment prerequisite for SGBs, which is usually 1 gram of gold. There is also an upper limit for individual depositors, which is naturally set at 4 kilograms per fiscal year (April to March). Though, trusts and similar entities can invest up to 20 kilograms.

5. Taxation: The interest earned on SGBs is taxable as per the Income Tax Act, 1961. However, the capital gains arising at the time of redemption are exempted from tax for individual investors. The indexation benefit is also available if the bonds are transferred before maturity.

6. Transferability and Liquidity: Sovereign Gold Bonds are tradable on stock exchanges within a specified time window as announced by the RBI. They can be transferred or sold to other investors, providing liquidity to the investors who wish to exit their investment before maturity.

7. Collateral and Loan Facility: SGBs can be used as collateral for loans. Some banks and financial institutions accept these bonds as security against loans. The loan-to-value (LTV) ratio depends on the prevailing gold prices at the time of taking the loan.

8. Redemption: The redemption of Sovereign Gold Bonds takes place on the maturity date. The maturity proceeds are credited directly to the investor’s registered bank account. The investor has the option to receive the redemption amount in cash based on the prevailing market price of gold.

It’s important to note that the information provided here is based on the knowledge available up until June 2023. For the most accurate and up-to-date details regarding Sovereign Gold Bonds, it is advisable to refer to the official announcements and guidelines issued by the Reserve Bank of India and the Government of India.