- Date : 07/09/2022
- Read: 5 mins
The love affair that Indians have for the yellow metal cannot be put into words. Gold investment has been a part of our life since its inception of investment. Many sovereign gold bond schemes add to the investors’ returns. Keep reading to know more about investment in sovereign gold bonds.
As one of the world’s largest importers of gold, India has almost 900 million tonnes of gold demand. The market has noticed a shift in investors’ behavior. More and more people are inclined towards digital gold over physical gold. The Government of India and RBI have provided an alternative named Sovereign Gold Bonds, wherein investors can own gold in a certificate or Demat format.
What Are Sovereign Gold Bonds?
Sovereign Gold Bond is a type of gold security issued by the Government of India on November 2015. Bonds are provided to the investors whose price is associated with the physical gold’s price. SGB belongs to the debt fund category, and here, unlike physical gold, you can purchase gold in digitalised demat or paper form.
Sovereign Gold Bonds are easy to buy and have approximately eight years. The sovereign gold bond interest rate is 2.5% per annum, but it is paid half-annually. The minimum purchase unit of a sovereign gold bond is 1gram. While investing in an SGB in a given financial year, an individual investor cannot make gold investments of more than 500 grams. According to the Hindu Undivided Family, if an investor makes joint gold investments, the maximum limit allowed is four kilograms; however, it only applies to the first buyer. Moreover, for trusts and universities, the allowed limit is twenty kilograms.
Five Sovereign Gold Bond Benefits
The basic idea of GOI behind introducing the Sovereign gold Bond was to cut down the hassle of buying and selling physical gold. Investment in the SGB gold bonds provides maximum returns and has some distinctive features absent in other forms of gold investment. Below, we have mentioned five sovereign gold bond benefits and read on to know if investment in sovereign gold bonds is beneficial or not.
1. Sovereign Gold Bonds Are Cost Effective
Compared to other forms of gold investment, investment in sovereign gold bonds is relatively cost-effective. Unlike physical gold, SGBs have a more prudent sense of holding. Physical gold has storage concerns, and an investor has to pay an additional storage charge. But as the SGB gold bond is digitalised, it can be either a certificate or held in your Demat account. This helps you save more. However, gold ETFs can also be held in Demat form, but a transaction fee is charged every time, which is absent in SGB gold bonds.
2. Sovereign Gold Bond Has Tax Benefits
As compared to physical gold, the SGB is more efficient. Generally, gold is a non-financial asset. If a person sells gold within three years, they must pay a short-term capital gain tax. But if a person sells gold after three years, it is considered a long-term capital gain. The tax rate is usually 10% without index benefit or 20% with index benefit. Moreover, there’s no capital gain tax on the redemption of the gold bonds under the sovereign gold bond scheme.
3. Sovereign Gold Bond Comes With Assured Interest
Assured interest gain is the main point of any investment. There’s no assured interest in either physical gold or ETFs. There’s no principal amount or interest payment by the investors in the case of an SGB. On the contrary, the annual sovereign gold bond interest rate is 2.5%, which is paid to the investors.
4. Sovereign Gold Bond Can Be Traded
Selling physical gold is quite challenging. Also, there’s a charge levied on the physical gold a person pays while buying. But this charge is not recoverable while selling it. Thus, a person does not get the same return. But, in the case of an SGB, a person can quickly sell it at market price without incurring any significant loss. Or an investor can also trade SGB gold bonds in the stock market. Moreover, the SGB gold bond can also be pledged as collateral for loans.
5. Sovereign Gold Bond Has No Risk Of Theft
There’s no risk of scam or theft in an SGB due to its non-physical nature. You don’t have to worry about the purity or security of the gold investment. SGBs have backed by the RBI and GOI and come with a sovereign guarantee. An investor gets a certificate of purchase.
Sovereign Gold Bond Scheme 2022-23
To tackle the rising inflation and geopolitical crisis, the sovereign gold bond scheme is the best way for investors to have a stable gold investment. An investor cannot avail of the Sovereign Gold Bond Scheme subscription throughout the year, and the window is open only for a limited period. RBI issues SGBs through different tranches during a financial year. If an investor makes a digital payment and online application, they will be provided with a discount of Rs.50 per gram. On August 22, 2022, the Sovereign Gold Bond Scheme 2022-23 was announced by the RBI. the second tranche of this year’s sovereign gold bond was active till August 26, 2022. The price set by RBI for this tranche of sovereign gold bonds is Rs. 5197/gram. Every investor will get a discount of Rs.50 if they fill out the form online and make online payments.
As Indians, our reverence for investment is beyond its market value. Through generations, the wisdom has been passed on to us to invest in gold that can come in handy on any rainy day. Is SGB a good investment? Absolutely yes. Investment in the sovereign gold bond will never disappoint if you wisely make your gold investments. SGB gold bond is one of the best forms of gold investment because, along with proving beneficial interest, it is also free of market risk, backed by GOI, and is a hassle-free option for gold investments.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.