Sovereign Gold Bond Schemes (SGB)

Gold holds significant value in both Indian households and the market. To support this preference among Indians, the Government has introduced a gold bond scheme.

This scheme is less risky and carries significant value in the market. However, it comes with several terms that individuals need to assess before investment.

Keep reading to learn more about this scheme and its eligibility parameters.

The gold bond scheme falls in the debt fund category that the Central Government introduced in 2015 as an alternative to buying physical gold items.

Technically, Sovereign Gold Bonds are part of the Government securities calculated in grams. Here investors pay the issuance price in cash and redeem the bonds in cash on maturity.

Individuals should know that less vulnerability towards market fluctuations and risks makes these bonds a secured investment tool.

The Central Government issues the time frame or window of these secured bonds. Depending on one’s capability, individuals can decide whether to invest in a gold bond.

However, authorities will issue gold bonds in the investor's name during the period.

The Government releases the gold bond issuance date every two to three months with a one week window. Interested investors can subscribe within this period.

One should know that the maturity period on Sovereign Gold Bonds is eight years. They have the flexibility to exit this bond after five years.

The five-day window to purchase the gold bonds opened on 29th November 2021. The digital platform to buy the gold during the eighth tranche will close on 3rd  December 2021.

However, the Sovereign Gold Bond 2022 will be issued in four tranches from October 2021 to March 2022. In this scheme, the Reserve Bank of India will issue bonds concurrent with the market price of gold.

This issue price stands at ₹4,791 for a gram. At the same time, there will be a discount of ₹50 per gram of gold for individuals who subscribe and pay online.

Let’s check the objective behind releasing these gold bonds. This will help understand the concept better.

The Government launched this SGB scheme as a long term investment instrument. The primary objective of launching this scheme in November 2015 was to reduce buying physical gold.

This would help individuals shift a part of their savings to invest in gold bonds. Since the value of gold is high in the Indian market, investors can strengthen their finances via this investment mode.

However, individuals must fulfil specific eligibility parameters to avail the Sovereign Gold Bond benefits.

Applicants need to meet the following eligibility criteria to invest in these schemes -

• Individuals should have Indian residency.
• Applicants who fulfil terms under Foreign Exchange Management Act of 1999 can invest in said bond and gain Sovereign Gold Bond returns.
• Any individual, trust, HUF, or charitable institutions and universities can invest in the gold bond scheme.
• Investors with subsequent change from resident to a non-resident status can hold the SGB till maturity.
• Minors can also invest in these bonds provided parents or guardians make a purchase.

Individuals can avail benefits of Sovereign Gold Bond by purchasing them from registered platforms.

One can buy Sovereign Gold Bonds from the following sources -

• Commercial banks
• Stock Holding Corporation of India Limited
• Stock exchanges like BSE and NSE
• Clearing Corporation of India Ltd
• Designated post offices

Individuals have to fill in an application form provided by the mentioned sources. One can also download it from the official website of the Reserve Bank of India.

Many public and private lending institutions offer provisions to apply for gold bonds online.

However, individuals must know that mere application won’t confirm issuance of bonds. They have to submit relevant documents and meet necessary eligibility parameters to avail competitive Sovereign Gold Bond interest rates and other benefits.

The issue price of gold bonds will be ₹50 per gram lower than the nominal value for investors applying online.

Individuals need to submit KYC documents as identity proof to invest in Sovereign Gold Bonds. These include PAN or TAN, Aadhaar card, passport, and voter ID card.

This KYC verification process will be conducted by the source issuing bonds such as agents, banks, or post offices.

Hence, it is essential to check all the factors related to this scheme before investing.

These are the points to check before investing in SGB. Checking these factors will also help understand Sovereign Gold Bond meaning in detail.

• Gold Denomination- Individuals should know that denominations can start from 1 gram and rise higher. This helps an investor to choose the gold weight that suits their financial capability.
• Form- Investors get an option to hold these bonds in a Demat form or paper. This flexibility makes SGB an ideal investment option.
• Flexibility- One gets an option to choose the amount to invest. They can accordingly gain interest yearly.
• Interest Rate-  The returns on SGB are directly linked with the RBI and market value of gold. Ideally, RBI offers an annual interest of 2.50% twice a year at a nominal value.
• Secure Funds- SGB funds are safe as they are Government securities and carry lower risk. This is missing in the case of physical gold.
• Maturity- This Sovereign Gold Bond maturity period is of eight years.
• Transfer- Investors can transfer the bonds as a gift to others by fulfilling the mentioned terms. Moreover, they can withdraw bonds after five years.
• Loan – Individuals can use these bonds as collateral against loans and gain substantial funds.
• Tax- IT Act, 1961 allows tax exemption on interest received on gold bonds. The capital tax gains are exempted from tax after redemption of gold bonds.
• Value- The value of gold bonds is scrutinised and decided as per grams and basic purchase unit.  An investor can purchase up to 4 kg of gold. A trust or university can buy nearly 20 kg of gold.

 

Hopefully, the above discourse on gold bond schemes and its various factors helps you develop considerable knowledge about it before investing. However, note that gold prices can be fluctuating based on market and economic conditions.

Hence, one should assess its terms thoroughly before investing. Individuals can also keep a tab on Sovereign Gold Bond status of an investor or a relative to make an informed decision.