Sovereign Gold Bond (SGB)

Benefits of Investing in Sovereign Gold Bonds 

The Sovereign Gold Bond Scheme empowers investors to make informed decisions and capitalize on the unique advantages offered by this government-backed investment avenue. Read on to learn more about its features and benefits:  

1. Earn Interest: Unlike physical gold, SGBs pay 2.50% interest annually, in addition to the rising value of gold.

1. No Storage Issues: Since the bond is digital or in paper form, there is no risk of theft or damage.

1. Tax Benefits: No capital gains tax if held till maturity. Interest income is taxable.

1. Government Guarantee: The bond is backed by the RBI, making it a safe investment.

1. Easy to Trade: Can be traded on stock exchanges if held in a Demat account.

1. Periodic Interest Payouts: Investors get payouts every six months 

1. Fixed Tenor: Gold bonds are issued for eight years, and starting in the fifth year, early withdrawal is allowed. 

1. Premature Withdrawal: People desiring to cash- in their investment can do so after a mandatory holding term of 5 years. 

Who can Invest in Sovereign Gold Bond Schemes?  

Investing in SGBs offers individuals an opportunity to diversify their investment portfolio. The below mentioned can invest in SGBs:  

1. Individuals having Indian residency.  

1. Applicants who fulfil terms under the Foreign Exchange Management Act of 1999 can invest in SGBs.  

1. Any trust, HUF, or charitable institutions and universities can invest in the gold bond scheme.  

1. Investors with subsequent change from resident to a non-resident status can hold the SGB till maturity.  

1. Minors can also invest in these bonds provided parents or guardians make a purchase.  

How to Buy Sovereign Gold Bonds?

1. Visit your bank, post office, or trading account platform.
2. Read the terms and conditions carefully.

1. Choose the number of grams you want to invest.

1. Pay the amount digitally or via cheque.

1. Receive the bond certificate or credit in your Demat account.

Minimum and Maximum Investment Limits for SGBs 

Investors should set up at least one gram when preparing to purchase gold bonds online in India (source). The following is the highest amount that can be invested in a sovereign gold bond: 

1. 4 kilograms for Hindu undivided families and individual investors 

1. 20 kilograms for universities, trusts, and charitable organizations 

1. Only the first holder in a joint holding is subject to the 4 kilograms investment limit. 

How to Redeem Sovereign Gold Bonds (SGB):  

Sovereign Gold Bonds (SGBs) can be liquidated through various methods in the secondary markets:   

1. Sale through Stockbrokers - You have the option to sell SGBs in the secondary markets using stockbrokers. Utilize Delivery Instruction Slip (DIS) slips for this process. Currently, a limited number of stockbrokers facilitate the sale of SGBs in the secondary market.   

1. Selling to Known Persons - If your current stockbroker is not authorized to sell gold bonds in the secondary market, you can sell your SGBs using a DIS slip to a known person.   

1. Broker Assistance - Approach your stockbroker and request them to place an order for selling the gold bonds in the secondary market.   

1. Opening a Demat Account with Suitable Brokers - If necessary, consider opening a new Demat account with stockbrokers who actively engage in buying and selling SGBs in the secondary market. Transfer your existing holdings to this new account using a DIS slip.   

These options provide flexibility for SGB holders to choose the most convenient method for selling their bonds in the secondary market.  

Sovereign Gold Bonds (SGB) Exit Options and Penalties:  

Investors in Sovereign Gold Bonds (SGB) have several exit options available to them, providing flexibility based on their financial needs and market conditions. However, it's crucial to be aware of potential penalties associated with premature exits. Here's a detailed overview:  

1. Redemption on reaching maturity: Upon reaching the maturity period, investors have the option of a smooth exit by redeeming the bonds at the prevailing market price. This ensures that investors receive the full maturity value of their investment.  

1. Secondary Market Trading: SGBs are tradable on recognized stock exchanges, allowing investors to sell their bonds in the secondary market before maturity. Trading provides liquidity and an opportunity to exit the investment based on prevailing market conditions.  

1. Premature Redemption: Investors can opt for premature redemption after the completion of the fifth year. However, this option is subject to certain conditions and penalties, and investors need to approach the concerned bank or post office at least one day before the coupon payment date.   

1. Redemption in fifth year: If an investor chooses to exit before the completion of the fifth year, the capital gains will be categorized as Long-Term Capital Gains (LTCG). The applicable tax rate for LTCG from SGB is 20% with indexation benefits or 10% without indexation benefits.  

Additionally, there might be restrictions on the premature redemption amount, and investors should carefully evaluate the associated penalties and tax implications before deciding to exit early.