Gold bonds open for subscription today: Things you should know before investing

If you are planning to invest in gold, know why buying sovereign gold bonds can be a smarter way to bet money on the yellow metal instead of buying physical gold.

Business Desk, ETV Bharat: With the festive season round the corner, investment in the precious gold metal has started picking up again in the country. Gold prices have risen for a third continuous session on Monday, hovering above the Rs 51,000 per 10gm mark.

At such a time, subscription for the seventh tranche of sovereign gold bonds (SGBs) have also opened from today. The Reserve Bank of India (RBI) has fixed the issue price of this tranche at Rs 5,051 per gram. Investors can subscribe till 16 October and the bonds will be issued on 20 October.

Buyers who are looking at the yellow metal from purely an investment perspective can subscribe to these gold bonds due to the numerous advantages it has over buying the physical metal. Here’s a look at some of the key features of these gold bonds:

What are gold bonds?

Sovereign gold bonds, or SGBs, are essentially government securities issued by RBI. They are denominated in multiples of gram(s) of gold with a basic unit of 1 gram.

These bonds are considered extremely safe as they carry sovereign guarantee both on the redemption amount and on the interest.

What are the key benefits of investing in gold bonds?

If you invest in the gold bond scheme, then along with the regular returns linked to rising/falling gold prices, investors are compensated at a fixed rate of 2.5% interest per annum payable semi-annually on the nominal value.

Also, there is no GST levy on purchase of gold bonds unlike that paid when buying physical gold. Moreover, no storage hassles or theft concerns as gold bonds are available in either demat or paper forms.

Gold bonds are also free from issues like extra making charges and purity that arise when one buys gold in the jewellery form.

Gold bonds can be used as collateral for gold loans, too. The loan-to-value (LTV) ratio to be set is equal to that set in the ordinary gold loan as mandated by RBI from time to time.

What is the lock-in period if you invest money in gold bonds?

It is important to know that the tenor of gold bonds is 8 years, with an exit option available only after the fifth year that can be exercised on the interest payment dates.

Who can invest in this scheme?

Resident Indian entities including individuals, HUFs (Hindu Undivided Families), trusts, universities, and charitable institutions can invest in such bonds.

How much gold can you buy through this scheme?

One can buy as little as 1 gram of gold through the gold bond scheme, while maximum investment limit has been set at 4 kg for individuals, 4 kg for HUFs and 20 kg for trust and similar entities in one fiscal year.

From where can you buy gold bonds?

Gold bonds are sold through commercial banks (like SBI, HDFC Bank etc), Stock Holding Corporation of India Ltd (SHCIL), designated post offices (as may be notified) and recognised stock exchanges like National Stock Exchange of India (NSE) and BSE, either directly or through agents.

How are these gold bonds priced?

The nominal value of gold bonds is based on the simple average closing price of gold of 999 purity during the last three business days of the week preceding the subscription period.

Also, those who apply online and pay through the digital mode get an additional discount of Rs 50 per gram from the issue price of the bond.

How are returns from gold bonds taxed?

The interest on gold bonds shall be taxable as per the provision of Income Tax Act, 1961. The capital gains tax arising on redemption of sovereign gold bonds at maturity has been exempted.