Gold Bonds are also known as Sovereign Gold Bonds, Sovereign Gold Bonds are government securities denominated in grams of gold. These gold bonds are now a days used as a substitute for holding physical gold. Those who subscribe to these bonds are known as Investors. These Investors are required to pay the issue price in cash also, the bonds will be redeemed in cash on maturity. And, no physical exchange of gold would actually be made.
What are the Eligibility Criteria or the Feature of Sovereign Gold Bonds?Eligibility Criteria –
a person has to be Indian resident Individual, HUF (Hindu Undivided Family) , Trust, Charitable Institution or University to be eligible to make a subscription to Gold Bonds. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold Sovereign Gold Bond till early redemption/maturity.2. Denomination/value-
A bond’s value is measured in multiples of grams of gold, 1 gram being the basic unit. This means that the initial investment is one gram of gold. The upper limit is 4 kgs of gold per individual & HUF. However, universities and trusts can invest up to 20 kgs of gold.3. Tenure-
The maturity period of a gold bond is 8 years. However, an investor can choose to exit the bond after the fourth year only on interest pay-out dates.4. Price and Payment-
An investor has the option of paying online, via demand draft or cheque or up to Rs 20000 via cash. On making the digital payment or online subscription one can also avail a discount of Rs 50 for each gram.5. Interest Rate-
The gold bonds attract an annual interest rate of 2.5%. They are paid on the nominal value twice a year. Returns are normally linked to the current market price of gold.6. Issuance of bonds-
The government of India Stocks has the right to issue gold bonds on RBI’s behalf, according to the GS Act, 2006. https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/GOVTSA130312.pdf
Investors must follow the Know Your Customer (KYC) norms while buying physical gold. Hence, the KYC documents like copy of driving license, PAN Card, passport or Voter ID needs to be kep8. Tax Treatment-
There is no tax on the proceeds of sovereign gold bond at the time of redemption. And, you can claim indexation benefits on the long term capital gain arising when you decide to transfer the bond. Which means, the tax implication of gold bonds are different from that of physical gold. However Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (Section 43)9. Sales Channels-
The government sell bonds through banks, stock Holding Corporation of India Limited (SHCIL) and selected post offices as may be informed. The trading also occur via stock exchange like Bombay Stock Exchange (BSE) or National Stock Exchanges (NSE) of India directly or through intermediaries.
The Sovereign Gold Bonds will be issued every month from October 2018 to February 2019 as per the calendar specified below, the sovereign Gold Bonds Calendar as per RBI policy is
|S No||Issue Series||Issue Year||Subscription Period||Issue Date|
|1||Series II||2018-19||15-19 Oct, 2018||23 Oct, 2018|
|2||Series III||2018-19||05-09 Nov, 2018||13 Nov, 2018|
|3||Series IV||2018-19||24-28 Dec, 2018||01 Jan, 2019|
|4||Series V||2018-19||14-18 Jan, 2019||22 Jan, 2019|
|5||Series VI||2018-19||04-08 Feb, 2019||12 Feb, 2019|
Since Gold Bonds are issued by RBI under the flagship of Government of India. People who are Risk averse (Risk averse means people who afraid to take risk / who avoid Risk are known Risk averse), prefer to invest in such bonds.
In addition to being safe and secure mode gold bonds are easy to store in paper form. Unlike, the physical gold which is usually kept in bank lockers or at a safe place.
In short, if someone is seeking a long-term investment avenue to make good returns, a gold bond can be best for their needs.
There are many distinct features of gold bonds which make it an attractive investment option too. Like,
The Reserve Bank of India on behalf of the government announces an issue of these gold bonds periodically. One can subscribe to the same online or offline. SGB will be issued on making the requisite payment by the
The minimum quantity which a person can buy is 1 grams. Whereas,
These limits are to be calculated for all the bonds subscribed during one financial year. In case of joint holding, the limit applies to the first applicant.
Anyone can apply for the bonds through
National Saving Certificate agent can act as advisors or agents. They would be authorised to collect the application form and submit in banks and post office. Bombay Stock Exchanges (BSE) and National Stock Exchange (NSE) are included as receiving offices, apart from the commercial banks.
The reason why one should buy SGB rather than physical gold under the SGB scheme depends upon a number of factors like,
Sovereign gold bonds carry none of the risks that is associated with physical gold, except the market risks because it is in paper form so risk is less for stealing. There is no hefty designing charges or TDS. Therefore stealing factor is not comes into picture or changes its ownershipsExtra Income
In sovereign gold bonds annual interest at the rate of 2.50% (on the issue price). This is the most recent fixed rate as per Reserve bank of India policy.Indexation benefits
If someone wants to transfer there bond before maturity, they can get indexation benefits. There is also a sovereign guarantee on the redemption money as well as on the interest earned, this is a major advantage of sovereign gold bonds.Tradability
It allows you to trade the gold sovereign bonds on stock exchanges within a specific date (at the discretion of the issue). For instance, the minimum period is 8 year but after completing 5 years of investment, you can trade them on the National Stock Exchange or Bombay Stock Exchange among others.Collateral
Some of the banks accept SGB as security against secured loans like ICICI bank, Kotak and HDFC banks etc.
SGB differ from physical gold and ETF in numerous ways, such as
|S No||Particulars||SGB||ETF||Physical gold|
|1||What these schemes mean||These are the gold bonds issued in paper form by the government and can later be converted into DEMAT form also. There is no physical gold consorted against such bonds. You can get the payment on maturity and purchase physical gold from market under this option.||Gold ETF – are the securities equivalent to gold prices traded over the stock market. These can be purchased by anyone trading online during the trading hours. Can be sold and purchased at the convenience of buyer. No gold is actually taken or given. You can purchase gold by selling the securities and realising the money.||This is what we all have witnessed in our households and society since ages. In this conventional method actual metal gold is purchased from the market. This is generally stored in form of gold ornaments or articles. With the possession of physical gold, there comes a high risk of theft and keeping it safe.|
|2||Lock In||8 year but money can be withdrawn at 5th ,6th and 7th year as well||No lock-in period can be purchased and sold online anytime.||No lock in under this mode too. It can be sold in the open market as per the will of investor and immediate cash can be realized.|
|3||Return||Returns are generally higher due to periodical interest earned on bonds + lower purchase value because of no making charges||Returns are lower than actual gold returns. The reason being loss due to trading charges and taxes for making transactions through stock exchange.||Returns are normally lower due to high making charges involved.|
|4||Taxability||No tax if sold after complete 8 years tenure.(Otherwise Capital gain tax is leviable as per normal provisions)||Capital Gains tax is levied as per the provisions of Income Tax Act. i.e LTCG is payable @ 20% after three years||Capital Gains tax is levied as per the provisions of Income Tax Act. i.e LTCG is payable @ 20% after three years|
|5||Minimum Purchase Quantity||Minimum amount one can buy bonds of shall not be below 1 grams.||No minimum purchase quantity has been prescribed||Any quantity can be purchased as per the will of purchaser. Even if the same is below 1 gram.|
|6||Purchase Cost||Low as the same is borne by the government. Infact online purchased and digital payment further reduces purchase cost by Rs 50 per gram.||In comparison to SGB the purchase cost is high as trading charges, commission and relevant taxes are payable.||Highest purchase cost due to huge making charges imposed by the seller.|
|7||Purity of Gold||Highest||Highest||Lowest|
|8||Liquidity||Least liquid option amongst these three. Because it cannot be sold before 5 years (minimum).||High Liquidity because can be sold online during the trading hours.||Highly Liquid|
|9||Collateral||Can be kept as collateral||Cannot be used as collateral for securing loans||Can be used for collateral purposes.|
|10||Safety of Gold||Least risk as to theft because security is hold either in paper or DEMAT form.||Risk is negligible due to electronic transfer of traded units.||Highest in risk. Resulting from physical possession of the gold metal.|
Let us divide the discussion in two parts, namely
Sovereign Gold Bonds have multi tax benefits.
with the announcement of Budget 2016-17 a greater relief was provided to SGB holders. It exempted redemption of bonds after the maturity period and the withdrawal has become completely tax free. Since the bonds are tax free no liability for TDS deduction arises over the same. However, if these are transferred before the date of Maturity, tax will be applicable.
As far as Gold Exchange Traded Funds are concerned it attracts following taxation provisions:-
Indexation benefit on Long term capital gains is available for both the options.
There are various factors contributing to restricted investors base for SGB, such as
And, understand deeply, what happens between when we invest the same amount in three different types Physical Gold, SGB and Gold ETF
Investment amount- Rs 1,00,000
Investment Horizon- 1 year
Annual appreciation in Gold Price-10% [Assumed]
Average Inflation – 5% for the period 5year [Assumed]
Individual tax slab- 10% [Assumed]
This table shows that if someone want to invest in any of the three types how much return they can get as we can see from this table physical Gold net profit is 9,000 per annum which is same as to Gold ETF but lesser than SGB which is 12,500 Net profit per year, not only this it is less risky as compared to physical Gold and Gold ETF.
*No tax has been calculated for SGB assuming they have been sold after completion of tenure.
1. Advantage of SGBs over physical gold: The quantity of gold for which an investor pays is protected since he receives the current market price at the time of redemption/ premature redemption. SGBs offer an edge above holding gold in physical form. The risks and costs associated in the later are eliminated.
2. Investment Risk associated with SGBs: Although SGBs are benchmarked for providing highest investment safety amongst the segment. still capital loss due to reduction in market value of the metal can arise. But, even in an adverse scenario like this the investor will not incur any loss in terms of units of gold invested for.
3. Investment Restrictions in SGBs: The minimum quantity aninvestor can subscribe via SGBs is 1 gram. the further purchase can be made in multiples thereof upto
The limits are for one financial year but aggregate investment in all SGB schemes during the year needs to be added together to check the limits.
4. Choose amongst all options – When a choice is required to made between physical gold, ETFs or SGBs, then SGB surely tend to stand out in terms of security, lowest purchase cost and higher returns.
Sovereign Gold Bonds are issued by the Reserve Bank of India (RBI) on behalf of the central government. These bonds are substitutes for physical gold, denominated in grams of gold. The application to SGB can be made to
In terms of return SGB offer following benefits
Being a investment in paper or DEMAT form the risk factor is minimal too.
In nutshell, if one really wishes to invest money and avail long term benefits they shall resort to SGBs. The tough lock in period help you control selling it for short term goals and paper form or DEMAT form saves your preserving cost and risk also. Also, a significant amount is not lost in making charges when your purpose is not to use the jewellery immediately rather, accumulate funds for future goals.
Yes a minor can apply though his / her guardian. No direct application can be made in this case.
Yes, if you make all the compliances correctly you can be sure about the allotment. Such compliances are
Yes, an online application can be made through the website of the listed scheduled commercial banks. Infact, the subscription can be made at Rs 50 less per gram when it is made online and the payment is also done though digital mode.
For premature withdrawal investors can file a request before 30 days of coupon date to requisite
The time period can further be reduced on request but shall in no case be lesser than one day before the coupon date. on successful processing of the application payment would be credit to registered bank account of the investor.
SGB can be used at par for taking up of loans as done in case of ordinary gold. The loan to value ratio will depend on the RBi circulars issued from time to time. SGB can work as eligible collateral for taking up loans form
Interest on the Bonds is taxable as per the provisions of Section 43 of the Income-tax Act, 1961. The capital gains tax on redemption of SGB is exempted for individuals. also, indexation benefit on long term capital gain will be available for everyone on transfer of bond(s).
Payment can be made in any of the following ways
In the eventuality of death of an investor following two conditions can be encountered
in this case the nominee shall approach Receiving Office to file its claim. The claim will be recognized on the guidelines set under the provisions of Government Securities Act, 2006.
If no nomination has been made then executors or administrators of the deceased investor or holder of succession certificate shall submit their claim to the Receiving Office or Depository.
The same process needs to be followed in case of minor investor too. But if the resulting beneficiary is minor than the title shall be transferred in name of person fulfilling the government’s eligibility criteria.
Reserve Bank of India has given a dedicated e-mail id i.e. sgb.rbi.org.in for the public to ask their queries. You can mail your query to the given mail id relating to issues on Sovereign Gold Bonds.
Normally, there are no chances of incurring loss while investing in SGB. But, there might be a scenario when the prices of gold fall over the time period. Even in this situation a person will not lose in terms of units of gold. The unit of gold purchased at the time of investment will remain same.
The redemption of bond is done after 8 years from the date of purchase. But, premature redemption is allowed form the 5th year itself. In case an investor wishes to liquidate the investment even before 5 years then the same can be transferred to other eligible person offline or offline if held in demat form.
The prices are announced by RBI with every announcement of tranche. the nominal price is computed on the basis of simple average of closing price of gold of 999 purity. Where, the closing prices are published by the India Bullion and Jewelers Association Limited. The last 3 business days of the week preceding the subscription period are to be considered for this calculation.
The eligible investors for Sovereign Gold Bonds are
An individual investors who occupied SGB at the time of being resident in India can continue to hold SGB till early redemption/maturity.
No, NRI though allowed to invest in all other gold funds and ETFs, cannot subscribe to SGBs. But, if an NRI hold SGB as a result of its earlier status as resident Indian then the same is allowed subject to
Yes, joint holding is allowed in case of gold bonds.
The application form can be taken form nay of the following organisations
Banks may also depending upon internal policies, provide online application facility.
Every application for SGB shall be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s). and, the same suffice for the Know Your Customer norms.
No. An investor cannot have more than one unique investor Id linked to any of the prescribed identification documents. The same unique investor ID is also to be used for all the subsequent investments in the gold bond scheme. Also, for holding securities in dematerialized form, quoting of PAN is mandatory while filling up the application form.
The Certificate of Holding is issued to the customer on the date of issuance of the SGB itself. The certificate can be collected either from
(if email address is provided in the application form.)
The nominal value of Gold Bonds shall be in Indian Rupees. It is fixed on the basis of simple average of closing price of gold of 999 purity. The same is published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period. A person subscribing online and making payment in digital mode gets subscription at Rs 50 lower than the actual value for each gram.
No, the RBI does not publish gold prices everyday. Instead, the price for the relevant tranche is announced on Reserve Bank of India’s official website two days before the issue opens.
The redemption value of gold bonds will be based upon the simple average of closing price of gold of 999 purity. Which is to be taken for previous 3 business days from the date of repayment. It is to be published by the India Bullion and Jewelers Association Limited. The amount will be transferred to the bank account and in indian rupees.
To redeem SGB follow the process mentioned below
If your friend or relative fulfills the eligibility criteria then these bonds can be gifted or transferred on their names. The transfer procedure shall be governed by the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity. It shall be done by execution of an instrument of transfer. The same is available with the issuing agents.
Yes, nomination facility is available as per the Government Securities Act 2006 and Government Securities Regulations, 2007. A nomination form is attached with the Application form. A NRI can be nominee and as a result can get SGB transferred on his own name but
You can download all Reserve Bank of India circulars on sovereign Gold Bonds from https://rbi.org.in/Scripts/BS_SwarnaBharat.aspx
No, since the redemption on maturity is tax free no TDS is applicable on the bond. However, the investor shall comply with the tax laws.
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