Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. In simple words it is certificates issued against grams of gold, allowing individuals to invest in gold without the strain of safekeeping their physical asset. It is an alternative to buying physical gold.

It was launched under the gold monetisation scheme by the central government in November 2015. The primary aim of such treasury bonds was to reduce the hassles involved with gold investments, as bullions and other physical forms of investments required proper and secure storage.

So what are benefits of this bonds over buying physical gold?

This scheme eliminated the risk and cost of storage of physical gold and you don’t think about the purity of gold. And with capital appreciation you also get 2.5% interest on your invested amout anully.

So let’s see the basic details of this scheme –

• Eligibility – Person residents in India is eligible to invest in SGBs. An Individual, HUF, Universities, Trusts, Charitable institutions can invest.
• Price – The prices is decided by India Bullion and Jewelers Association Limited (IBJA). It is fixed on the basis of average of closing price of gold of 999 purity for the last 3 business days of the week preceding the subscription period.
• Quantity – Subscriptions are made in SGBs as grams of gold. The minimum investment is equal to price of 1 gram gold and maximum investment is equal to price of 4KG gold for Individuals and HUFs and for Corporations and Trusts the maximum limit is price of 20KG gold.
• Tenor – Investment in SGBs have fixed tenor of 8 years with facility of premature withdrawal from 5th year of investment.
• Where to buy – SGBs are sold through Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, Post Office, Stock Holding Corporation of India Ltd. (SHCIL) and Stock Exchanges.
• How to buy – For buy SGBs you must fill application form which you can get from upper mentioned institutions or you can download it from RBI’s official website.And you must accompanied you application form with your PAN Number. And you can pay in both online mode or offline mode. But if you pay online then you have to pay ₹ 50 less per gram.
• How and when you get you holding certificate – Holding certificate will be issued on the date of issuance. And you can get your certificate from Banks/SHCIL office/Post Office/ Stocke Exchanges where you applied or obtained directly from RBI on email, if email address is provided in the application form. Or you can also choose to digitise such holding certificates to utilise them in your Demat accounts.
• Interest – Interest rate of 2.5% per annum is associated with the sovereign gold bond scheme and interest will be credited semi-annually to the bank account of the investor.
• What will be maturity amount and how you get it – Maturity price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by IBJA. Maturity amount will be credited to bank account which is given by you at the time of apply.
• Taxation – The capital gains tax arising on redemption of SGBs to an individual has been exempted from taxes. But Interest on the Bonds will be taxable as per the provisions of the Income-tax Act.

Other features of SGBs are –

1. Joint holding of SGBs is allowed.
2. Nominee facility is available for this investment.
3. You’ll pay ₹ 50 less per gram if you pay through any digital mode.
4. Premature redemption is allowed from 5th year.
5. These bonds are tradable if held in Demat account.
6. These bonds can be transfer to other investor.
7. You can gift these bonds to relative/friends.
8. You can use these securities as collateral for loans same as Gold Loan.

Disadvantages of SGBs –

There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose the units of gold which he has paid for.

So, If you want to diversify your portfolio and invest in gold them SGBs is a great investment scheme with high returns, lower risks and periodic interest is a good source of passive income.

If you have any other queries then ask in comment.

Happy Investing.