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What Are Sovereign Gold Bonds Scheme ?

12 Sep 2022 0 COMMENT

What is the concept of Sovereign Gold Bonds to investors of India? 

If you are an Indian resident and investing in gold coins, you are losing a golden chance to earn some great returns that can come through gold bonds. In November 2015 Reserve Bank of India introduced gold bonds to Indian entities on the behalf of the central government. These are now floating in the investment market. This bond scheme allows the depositor to hold on to the price movement as well as sovereign gold bonds pay you a fixed interest on your investment similar to the fixed deposits in the bank.  With this introduction, Government provides an alternative to the investors to buy physical gold. It not only tracks the import-export value of your asset but also permits it to be transparent at the same time.  

What is the tenure and safety of Sovereign gold bonds? 

These bonds are considered safe securities of government and the value is denominated in grams multiples thus, the minimum investment is 1 gram. This scheme has gained importance among investors since 2015, as a substitute for physical gold. In one financial year, an investor can buy 4kgs of gold bonds for a minimum tenure of eight years. But in the scheme, there are options to come out of the bond in the fifth, sixth, and seventh years. They also have the nomination facility that you can make one nominee at the time of purchasing, or it can be done later. For the scheme, you need to find SEBI authorised agent to make a successful purchase. This amount will be redeemed on the maturity of bonds.   

How do Sovereign Gold bonds give you the rate of interest? 

The fixed interest rate of the bond scheme is the most beneficial aspect for the customers. ROI per year is 2.50% over and above the price of gold. This is paid to the customer semi-annually depending upon the nominal value.   

Who can buy these bonds? 

The Sovereign gold bond scheme aims to reduce the current account deficit (CAD) by dipping the country's dependence on the import of gold to meet the domestic country's demands. The buyers who have low-risk hunger and want to get the regular benefit on their investment must engage themselves in Sovereign gold bonds. Moreover, it is the most profitable investment scheme in the asset market. Investors will get the maximum return on their outlay.  

Moreover, buyers who have less money to invest and want to have less purchasing cost of bonds must invest in this scheme. Because the expense of buying as well as selling such bonds is nominal in comparison to physical gold. For people who like to have gold as an assent, for them buying these bonds is the best chance to make an asset.  

Apart from this, people, who are looking to expand the assortment of their speculation can plump for these bonds which are subjected to high market risks. At the time of a fall in the market equity, the gold value will increase and this will help to reimburse for the overall risk involved in the whole investment portfolio. In the case of minors, they can buy SGB on the behalf of their parents and guardians.  

Why one should invest in gold bonds? 

There are numerous advantages to investing in gold bonds. These are restricted for sale to Hindu Undivided Families, Trusts, Universities and Charitable Institutions and Indian individuals as well. A variety of benefits of Sovereign gold bonds are: 

  • Investors are assured to get the same market value of gold at the time of bond maturity and also to get the periodical interest. 

  • These bonds can also be used for giving loan guarantees and to cover the DEMAT form.  

  • Buyers can make the bond payment via multiple options like cash, demand draft, cheque or through e-banking. 

  • SGB holders can earn a guaranteed annual fixed interest at the rate of 2.50%. 

  • These are issued by the Indian government, therefore, are secure from any risk factor.  

  • As per the Income Tax Act, 1961 provisions, interest earned on gold bonds is taxable.  

  • It is a profitable substitute for holding physical gold with eliminated risks and costs of storage.  

  • These bonds don't require making charges, in the case of gold in jewellery form that is the easiest way of trading. Consequently, eradicates the risk of loss of scrip among others. 

  • At the maturity time, SGB holders get cash equivalent to gold value and they have not imposed any tax.  

  • Trading is also possible with Sovereign gold bonds on stock exchanges within a particular date. For the case in point, after five years of investment in SGB, you can trade them on the National or Bombay Stock Exchange. 

To sum up any Indian resident, individual or group or minor can purchase Sovereign gold bonds with the eligibility criteria of the 1999, Foreign management act. It is the best chance of investing and also doing well in case of strong prices of gold. For long-term investors, it is worth buying Sovereign gold bonds. 

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.