TomorrowMakers

As another tranche of SGBs comes up for sale, here’s what you need to know about them.

Series V of Sovereign Gold Bond will be open for subscription

The Series V 2021-22 of the Sovereign Gold Bond scheme will be open to investors till 13 August 2021. These bonds will be issued to applying investors on the 17th of August. Four tranches of SGB has already been sold this year, and this series is offered at Rs 4,790 per gram of gold. 

Gold is easily one of the most coveted assets in India. It holds an emotional and aspirational value for most individuals or families. However, possessing physical gold comes with its own set of issues. These include risk of theft, storage and carrying costs, high making and designing charges, etc. 

In November 2015, the Government of India introduced Sovereign Gold Bonds (SGBs) as an alternative to physical gold. SGBs help you benefit from the upward price movement of the asset, along with a fixed interest income. The value of these government securities is in multiples of grams of gold. Their purchase and redemption after maturity take place in terms of cash. 

Sovereign Gold Bonds are a very safe option. With an SGB investment, you can assume that you possess gold in ‘certificate’ format.

Upcoming tranche of SGBs

This financial year, the Finance Ministry plans to offer six tranches of SGB schemes. Series IV was released in mid-July, while series V is being offered between 9 August and 13 August. The price of the bond will be based on the simple average of 999 pure gold prices for the last three working days of the week prior to the subscription period. 

In the last series, SGB of one gram gold was priced at Rs 4807, which was Rs 82 lower than the series III price. Series VI SGB for FY 2021-22 will be open for subscription from 30 August till 3 September. 

How to invest in SGB's

The process of investment in SGB starts with the filling of the application form of SGB. This form is available on the RBI website, and most banks now provide online application facilities. The Stock Holding Corporation, designated banks and post offices, and agents can also provide the form. KYC documents and PAN must accompany the application form. 

A unique investor ID is generated for allotment of the SGBs, which is used for all future investments as well.  

What to consider while investing in SGBs

1. Investor eligibility

According to the Foreign Exchange Management Act, 1999, any individuals, Hindu Undivided Families (HUFs), trusts, charitable institutions, and universities are eligible to invest in the Sovereign Gold Bond scheme. A minor can also invest by having a guardian on their behalf.

2.Investment limit

The minimum and maximum investment for individuals and HUFs is 1 gram and 4 kilograms respectively per financial year. Whereas, for trusts and similar entities, the maximum investment goes up to 20 kilograms. A nomination facility is available as well. 

3. Tenure of investment and premature withdrawal

The maturity period for an SGB is 8 years. However, in India, the mandatory lock-in period is 5 years, so if you need to make a premature withdrawal, it can be done only after 5 years.

4. Whom to contact for investing in SGBs

The following entities can be contacted for purchasing SGBs:

  • Stock Holding Corporation of India Ltd. (SHCIL)
  • Nationalised banks
  • Authorised stock exchanges
  • Scheduled private and foreign banks
  • Designated post offices

You can visit any branch of these entities or apply online by visiting their respective websites.

Related: Here's how you can hold gold in demat form just like equity shares or mutual fund units

5. Setting investment goals

SGB provides you financial security to some extent with its fixed interest income. Besides, being an investment in paper format, it is generally considered an investment. Therefore, investment is done in SGBs with a goal in sight, such as funding a child’s education or wedding, purchasing property, or maybe securing your retired life. With a lock-in period of 5 years and a tenure of 8 years, make sure that your goal is at least 5 years, or 8 years away from your investment year.

6. Tax implications

If you possess physical gold, your gains are subject to tax. In the case of SGB, taxation on gains is exempted at maturity or redemption for individual investors. For non-individual investors, if they transfer the same before maturity, they get indexation benefit. However, the interest earned is taxable as per the income slab. In the SGB is sold during its tenure, tax is charged as per the income slab if sold within three years. If sold after three years, long-term capital gains tax is charged at the rate of 20.8%.

7. Availability of SGB

SGBs are not available the whole year through. The government decides and opens a window every 2-3 months for investors to purchase SGBs which remains open for a week. If you wish buy in between, you need to buy earlier issues in the secondary market.

Related: Sovereign Gold Bonds: An attractive tax-free wealth creation investment option

8. Interest rate advantage

A tempting advantage of Sovereign Gold Bonds is its fixed interest rate of 2.50% every year. Interest payout is done every 6 months on the nominal value. The returns are market-linked and in terms of interests and capital appreciation.

Physical gold has additional premium value, while SGB price is close to the original gold price. So, if you are thinking of investing in gold, SGBs can be a paper substitute or equivalent. It is a low-risk, hassle-free investment that can be easily maintained in demat form.