Mumbai: If you are planning to invest in gold, this news is for you. The Reserve Bank of India (RBI) is offering Sovereign Gold Bonds (SGBs) with an issue price of Rs 4,807 per gram of gold for five days starting Monday. Buyers who are looking at the yellow metal from purely an investment standpoint can subscribe to these gold bonds due to the numerous advantages the scheme offers over buying the physical gold. As the bonds are open for subscription from July 12 to July 16 2021, ETV Bharat explains the key features of this scheme.
What are gold bonds?
Sovereign gold bonds (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?
Investors are compensated at a fixed rate of 2.5 per cent interest per annum payable semi-annually on the nominal value. This is over and above the gold price return linked to rising/falling gold prices. There is no goods and services (GST) tax levy on the purchase of gold bonds unlike that paid when buying physical gold.
Moreover, there are 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 also be used as collateral for gold loans. 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 are the risks in investing in SGBs?
There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold that a subscriber has paid for.
Is there any lock-in period?
Yes. It is important to know that the tenor of gold bonds is 8 years with an exit option available only after the fifth year.
Who is eligible for a subscription?
Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in this scheme. Eligible investors include individuals, HUFs (Hindu Undivided Families), trusts, universities, and charitable institutions. Individual investors with subsequent changes in residential status from resident to non-resident may continue to hold SGB till early redemption or maturity. The RBI also allows joint holding of the investments. Besides, one can subscribe on behalf of a minor.