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The sovereign gold bonds (SGBs) are government securities issued by the Reserve Bank of India. Indians are very fond of gold and in the fiscal year, 2021 India imported gold worth 2.5 trillion rupees. The sovereign gold bonds scheme was launched in November 2015 with the objective to reduce the demand for physical gold and shift a part of the domestic savings that was used to purchase gold into financial savings. These are denominated in grams of gold and are substitutes for physical gold.
Some of the details for investing in the sovereign gold bond scheme are:-
The persons eligible to invest include individuals, Hindu Undivided Family (HUF), trusts, universities, and charitable institutions.
A person can hold an account jointly and a minor can also invest but the application on behalf of the minor has to be made by his guardian.
The minimum investment permissible is 1 gram of gold.
The bonds are denominated in one gram of gold and multiples thereof. The maximum limit of subscription is 4 Kg for an individual, 4 Kg for Hindu Undivided Family (HUF), and 20 Kg for trusts and similar entities as notified by the government from time to time. The annual ceiling applies to bonds purchased under different tranches during issuance by the government and from the Secondary market.
Joint holding investment-
Each family member can buy the bonds in their name. In the case of joint holding, the investment limit of 4 Kg will be applied to the first applicant only.
The price of the sovereign gold bond is fixed in Indian Rupees on the basis of the closing price of gold of 999 purity; published by the Indian Bullion and Jewelers Association Limited, for the last 3 working days preceding the subscription. The issue price for the gold bonds is Rs. 50 per gram less for those who subscribe online and make payment through digital mode.
The bonds will be sold through offices or branches of nationalized banks, Stock Holding Corporation of India(SHCIL), Clearing Corporation of India(CCIL), scheduled private banks, designated post offices, and recognized stock exchanges like the National Stock Exchange of India Limited and the Bombay Stock Exchange either directly or through agents.
Know-your-customer (KYC) procedures will be the same as that of purchasing physical gold. The documents required would be Voter ID, Aadhar card/ PAN card, or Passport/TAN. An investor can have only one unique ID linked to the identification documents that are to be used in all further investments in the scheme. Quoting the PAN in the application form is mandatory for holding the securities in the Demat form.
The interest rate that the investors would get is 2.50 percent (fixed rate) per annum on the initial investment. Interest would be paid semi-annually to the bank account of the investor and the last interest would be paid on maturity along with the principal.
On maturity, the gold bonds will be redeemed. The redemption price will be in Indian Rupees based on the closing price of gold of 999 purity of the previous 3 business days from the repayment date; published by the Indian Bullion and Jewelers Association Limited, (IBJA).
The interest and the redemption amount would be credited to the bank account of the customer. In case there are any changes in details such as the account number or email ids, the investor must inform the bank/ SHCIL or the post office as the investor would be advised one month before maturity that the bonds are going to mature. On the maturity date, the proceeds would be credited to his bank account according to the details in the record.
The tenure of the bond is 8 years, but premature or early redemption of the bond is allowed after the fifth year from the date of issue. In case if the customer wants a premature redemption he can approach the post office/ bank/SHCIL/ thirty days before the coupon payment date for the procedure. The request would be complied with provided the investor approaches the bank or the post office at least one day before the coupon payment date and the amount would be credited to his bank account.
The bonds can be used as collateral to get loans from banks, financial institutions, and the Non-Banking Financial Companies (NBFC). The loan against the gold bonds would depend on the decision of the bank/financing agency and should not be construed as a right.
The interest on the bonds is taxable as per the Income Tax Act, 1961(43 of 1961). The capital gains on redemption of the gold bond are exempted and the indexation benefit is provided to the long-term capital gains arising from the transfer of the bond. There is no TDS on the bond.
The bond is tradable on the stock exchanges and can be transferred to any other investor.
The payment can be made by cash (Up to Rs. 20,000), cheques, demand draft, and electronic fund transfer.
Gifting of the bond to a friend-
The bond can be gifted or transferred to a friend or a relative according to the Government Securities Act 2006 and Government Securities Regulations 2007 before maturity by execution of an instrument of transfer.
The nomination facility is available as per the Government Securities Act 2006 and Government Securities Regulations 2007. A nomination form can be completed along with the application form.
Procedure on death of an investor-
The nominee can approach the receiving officer with their claim. In the absence of a nomination, the claim of the holder of a succession certificate may be submitted to the receiving officer/ Depository.
Benefits of Sovereign Gold Bond over physical gold-
1) The sovereign gold bond is a better alternative than physical gold. There is no storage cost.
2) The quantity of gold remains the same as the investor receives the market price at the time of redemption.
3) There are no issues like purity and making charges and the investors are assured of the market value of gold at the time of maturity.
4) The sovereign gold bonds are held in a Demat account eliminating the risk of loss as in physical gold due to theft or robbery.
5) The 2.5% interest makes it an attractive investment, unlike physical gold. Investors earn passive income on gold bonds.
6) It is an attractive option for long-term investors as the capital gains are completely tax exempt.
The Sovereign Gold Bond Scheme 2021-22, series VIII can be subscribed from November 29 till December 3, 2021. The issue price for the SGB has been fixed at Rs 4971 per gram of gold. An investor can make a detailed study and take an informed decision regarding investing in the SGB. The next series i.e. series IX will be open from January 10-14, 2022.