What is the first thing that comes to your mind when you hear the word ‘bond'?
“Bond, James Bond” right? Well, today, we will talk about another bond that is not that bad either- Sovereign Gold Bond. In this article, we will discuss the Sovereign Gold Bond scheme, its features and benefits. Let's get started.
What Are Sovereign Gold Bonds?
SGBs or Sovereign Gold Bonds are a great way of investing in gold. These were introduced in 2015 under the Gold Monetisation Scheme by the Government of India. Under the Sovereign Gold Bond Scheme, the Reserve Bank of India (RBI) issues the SGBs in tranches throughout the year.
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What Are The Features Of Sovereign Gold Bonds?
Here are the key features of the SGBs:
Only the RBI is allowed to issue SGBs on behalf of the Government of India.
SGBs are issued by the RBI in denominations of 1 gram of gold.
The price of SGBs is fixed based on the simple average of the closing price of gold on the last 3 working days of the week before the subscription period.
If you invest in SGBs, you will receive a holding certificate for your investment. You can also convert it to demat form.
SGBs hold a maturity period of 8 years.
However, you can redeem SGB investments from the 5th year of investment.
You can trade your SGBs on the stock exchange after completing 5 years of investment.
Sovereign Gold Bonds can be used as collateral for loans.
Interest earned from SGBs is taxable as per your tax slab under the Income Tax Act of 1961.
What Are The Benefits Of Investing In Sovereign Gold Bonds?
Here is why SGBs make an excellent form of investment:
Safety: Sovereign Gold Bonds are backed by the Government of India and are also highly liquid in nature. Hence, SGBs come with a very low risk of losing capital.
Cost-effective: Purchasing physical gold carries high premiums, additional GST of 3%, risk of impurity, storage charges, etc. On the other hand, digital forms of gold like SGBs do not attract such costs and hence are better ways to invest in gold.
Low minimum investment: The minimum investment size in SGBs is just 1 gram of gold.
Regular returns: With SGBs, you are entitled to receive an interest income of 2.5% per annum on the invested amount. This interest is paid every 6 months over and above the capital gains earned.
Summing Up
Historically, gold is known to be a great hedge against market fluctuations and acts as a diversifier in your portfolio. However, purchasing physical gold may not be the ideal way to invest in this yellow metal as it comes at a huge markup price, and you may not recover the complete amount on resale.
Sovereign Gold Bonds, though underrated, are a great way to invest in gold and get a hedge against inflation. This gold bold scheme comes with minimum transaction costs and eliminates the need for paperwork and storage.
So, if you are looking for an investment that offers a return better than your savings account but one that is not as volatile as the stock market, Sovereign Gold Bonds may be ideal for you. Remember, all that glitters does not have to be gold, it can also be GOLD BONDS.
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