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What is the Sovereign Gold Bond Scheme?

Introduction

If you are looking for an alternative to investing in physical gold, the Sovereign Gold Bond Scheme is a good option.  The Indian Government introduced the Sovereign Gold Bond Scheme in 2015, through which Bonds get issued by the Reserve Bank of India in tranches regularly. Under this scheme, the investor receives a certificate of holding against a specific weight of gold. Since a guarantee of the sovereign backs the Bonds, there are no risks of default.

Salient features

  • The Bonds get denominated in multiples of grams of gold, and the minimum investment amount is one gram gold. Individuals and Hindu Undivided Families can invest up to a maximum of 4kg, while trusts, universities, and charitable institutions can invest up to 20kg.
  • The value of Gold Bonds is fixed in Indian rupee, based on a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association, for three business days before the subscription period.
  • Investors can trade Sovereign Gold Bond on the stock exchange after five years from the date of investment.
  • These Bonds offer a much higher return compared to ETFs and physical gold.
  • These Bonds come with eight years, but investors can exercise the exit option after the fifth year. Exercise this option on the interest payment date.
  • If you redeem the Bonds after the term ends, you need not pay Long-Term Capital Gain Taxes. Moreover, these Bonds are not subjected to TDS payment.
  • The returns are fixed at 2.5% on the initial investment amount. It gets credited semi-annually.
  • One can jointly hold Sovereign Gold Bond. Investors can also add a nominee to these Bonds.
  • These Bonds get furnished as collateral when applying for loans from banks, financial institutions, and non-banking financial companies.
  • When purchasing the Bonds, the investor needs to furnish Bank Account details and submit a copy of the PAN Card for KYC compliance. Both interest and redemption proceeds get directly credited to the same Bank Account.

Who should invest in them?

The Sovereign Gold Bond is ideal for those investors who do not want to deal with any additional stress of safekeeping physical gold in their house or rent a locker in the bank. These Bonds enable you to take advantage of the volatility of the gold prices without worrying about its safety. They are also a safe bet for those with a low-risk appetite but who want to diversify their portfolio.

Investments in Sovereign Gold Bond is simple. Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and the authorised stock exchanges and their agents can sell Sovereign Gold Bond.

Now that you know what is Sovereign Gold Bond apply by simply filling up the application form available with the authorised issuers. The form is also available on the RBI portal, and some banks provide online application facilities as well.

Disclaimer:

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  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 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. 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.

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