What are Sovereign Gold Bonds?
Sovereign gold bonds were introduced by the Government of India in 2015 under the Gold Monetization Scheme. The gold bonds are issued every month from October 2019 to March 2020. Under this scheme, the issues are offered in tranches by the Reserve Bank of India in consultation with the Government of India.
The bonds will be denominated in the multiples of a gram of gold with the minimum unit of 1 gram. The interest for the gold bonds will be 2.50% per annum which is payable semi-annually on the nominal value. The tenure of the bond will be for a period of 8 years with an exit option available in the 5th, 6th and 7th year on the dates of interest payment. The maximum limit of gold which can be subscribed by an individual is 4 kg for, 4 kg for a Hindu-Undivided Family and 20 kg for trusts and other similar entities. If the gold bonds are co-owned, the limit of investment will be 4kg which will be applied to the first applicant only.
The gold bonds will be issued as stocks under the Government Security Act, 2006. The investors will also be given a Holding Certificate for the same.
Why should you invest in Gold Bonds?
There are several advantages to investing in gold bonds. The gold bonds are restricted for sale to Indian residents including individuals, Hindu Undivided Families, Trusts, Universities and Charitable Institutions.
Some of the advantages of investing in gold bonds are:
- These bonds can also be used as collateral for loans.
- The payment for the bonds can be made with cash up to a maximum of Rs.20,000 or demand draft, cheque or through e-banking.
- These bonds are eligible to be converted into DEMAT form.
- Gold bonds are a form of security as they are issued in the form of the Government of India stock.
- The gold bonds which you invest in will be not subjected to tax. The tax benefit is given to the interest you will receive from the investment.
How to invest in Sovereign Gold Bonds?
As mentioned before, the issues of gold bonds are made open for subscription in tranches by the Reserve Bank of India after consulting with the government.
The tranche for the 2019-2020 series subscription is as follows:
|Tranche||Date of Subscription||Date of Issuance of Bonds|
|2019 – 2020 Series I||June 03 – 07, 2019||11 June 2019|
|2019 – 2020 Series II||July 08 – 12, 2019||16 July 2019|
|2019 – 2020 Series III||August 05 – 09, 2019||14 August 2019|
|2019 – 2020 Series IV||September 09 – 13, 2019||17 September 2019|
To invest in gold bonds, you can fill in the application form which is provided by issuing banks or from designated post offices. You can also download the application form from the website of the Reserve Bank of India. Many banks such as the State Bank of India and Kotak Mahindra Bank offer the provision of applying for bonds online.
Every applicant must provide their PAN number issued by the Income Tax Department. Without a PAN, one cannot apply for investing in gold bonds.
The gold bonds are sold through the offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, Designated Post Offices, and the Stock Holding Corporation of India.
There is a certain eligibility criterion that must be met to be allotted gold bonds. Applying for it does not ensure that you will be given the bond. You can apply for the gold bonds online on the websites of the listed commercial banks. The issue price of the gold bonds will be Rs.50 per gram less than the nominal value for those investors applying online.
Eligibility for Sovereign Gold Bond Scheme
Individuals who are keen to participate in the Sovereign Gold Bond Scheme need to satisfy the following simple eligibility criteria.
- Indian resident – This scheme is open only to Indian residents, with the Foreign Exchange Management Act of 1999 formulating the eligibility criteria.
- Individuals/groups – Individuals, associations, trusts, HUFs, etc. are all eligible to invest in this scheme, provided they are Indian residents. Under the scheme, one can jointly invest in bonds with other eligible members.
- Minors – This bond can be purchased by guardians or parents on behalf of minors.
Features and Benefits of Sovereign Gold Bond SchemeSome of the unique features and benefits of this scheme are mentioned below.
- Gold denomination – These bonds will be issued in multiple weight denominations, starting from 1 gram onwards, providing flexibility in terms of purchasing gold which suits the needs of an individual.
- Format – One has an option to hold these bonds either in paper or demat form, whichever is convenient to an individual.
- Flexibility – Investments in this scheme are flexible, with one having an option to choose the amount he/she wishes to invest.
- Interest – Investments in this scheme are eligible to earn interest every year.
- Safety – There is no need for storage or safety of gold under this scheme, as the gold isn’t physically given to an investor immediately.
- Purity – Since it is backed by the government, one is assured of purity of gold when they invest in the scheme.
- Maturity – This scheme has a maturity period of 8 years.
- Gift/transfer – Investors can choose to gift or transfer these bonds to others, provided they meet the necessary eligibility criteria.
- Premature withdrawal – Premature encashment of these bonds is allowed after 5 years of issue.
- Loan collateral – Investors can use these bonds as collateral against loans.
- Application – The application process is simple and fast, with banks and post offices permitted to provide this service.
- Payment modes – One can opt to purchase these bonds through multiple payment modes, with cheques, cash, DDs or electronic transfer accepted.
- Nomination – This scheme has a provision for nomination, adhering to the rules of the land.
- Tradable – Investors can trade these bonds on stock exchanges, subject to notifications of the Reserve Bank of India.
Sovereign Gold Bond Scheme Interest rate
The government has fixed an interest rate on this scheme, with all investors eligible to earn an interest on their investment. The current interest rate stands at 2.75% per annum, with this interest paid every six months. This interest rate can be changed by the government as per its policies.
Risk associated with Sovereign Gold Bonds
Gold, is traditionally a very safe investment, and typically the risk associated with Sovereign gold bonds is very low. However, given the fact that gold rates depend on market performance, any drop in gold rates could put the capital at risk, which would be the case even if one owned physical gold. Regardless of market rates, an investor should take solace in the fact that the amount of gold he purchased doesn’t change.
KYC Documents required
The following KYC documents are required to invest in Sovereign Gold Bonds:
- Proof of identity (Aadhaar card/PAN or TAN /Passport / Voter ID card)
- KYC process will be carried on by bond issuing banks, agents or post offices.
Maximum /minimum amount of investments under Sovereign Gold Bond Scheme
Sovereign Gold Bonds are issued in denominations of 1 gram of gold and multiples of it. The gold scheme accepts a minimum investment of 2 gm and a maximum investment of 500 gm form a single person in a fiscal year.
Where do I get the application for SGB?
The application form for SGB will be available AT issuing post offices and scheduled commercial banks. It can also be downloaded form the official website of Reserve Bank of India.
Is a minor eligible for investing in SGB?
Yes, minors are also eligible for investing in SGB under the supervision of guardian/parents.
Is there any risk involved in investing in SGB?
Yes, there might be a risk of capital loss when the market rate of gold goes down. But, it does not affect an investor's units of gold for which he/she has paid.
Can I apply for SGBs online?
Yes, you can apply for these bonds online by visiting the official website of designated commercial banks issuing these bonds.
Can I take a loan against Sovereign Gold Bonds?
Yes, you can take a loan by using these bonds as securities. These bonds can be used as collaterals at banks, financial Institutions and other non-banking financial companies.
Is tax deducted at source (TDS) for investing in SGBs?
No. Tax is not deducted at source.
How do I pay for these bonds?
There a number of payment options available to pay for these bonds. You can pay via demand draft/electronic fund transfer/ cash or cheques.
Is it possible to invest in Sovereign Gold Bonds in DEMAT account?
Yes, you can keep these bonds in DEMAT account.
Can Sovereign Gold Bonds be traded?
Yes, Sovereign Gold Bonds are tradable on stock exchanges as per the RBI notification.
Can I sell or transfer Sovereign Gold Bonds purchased by me?
Yes, you can sell or transfer your bonds as per provisions of the Government Securities Act.
Can I purchase bonds worth 500gm every year?
Yes, you can purchase 500 gm worth of gold every year under the Sovereign Gold Bond Scheme.
Is nomination facility is available for SGBs?
Yes, nomination facility is available for SGBs. A nomination form is attached with the application form.
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