Mumbai: If you are planning to invest in gold, this news is for you. The Reserve Bank of India (RBI) will be offering Sovereign Gold Bonds (SGBs) with an issue price of Rs 4,790 per gram of gold for five days starting Monday. If you are looking at the yellow metal from an investment standpoint, you should evaluate gold bonds due to the numerous advantages they offer over buying the physical gold. As the bonds are open for subscription from August 09 to August 13, ETV Bharat explains the key features of this scheme.
Meaning: 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 guarantees both on the redemption amount and on the interest.
Major Benefits: 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.
Risks: 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.
Lock-in period: It is important to know that the tenor of gold bonds is 8 years with an exit option available only after the fifth year.
Eligibility: 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.
Limits on investment: One can buy as little as 1 gram of gold through the gold bond scheme, while the maximum investment limit has been set at 4 kg for individuals and HUFs in one fiscal year. Whereas, trusts and similar entities can buy up to 20 kg of gold.
Sellers: Sovereign gold bonds are sold through commercial banks (like SBI, HDFC Bank, etc), Stock Holding Corporation of India Ltd (SHCIL), designated post offices and recognised stock exchanges like the National Stock Exchange of India (NSE) and BSE.
Pricing mechanism: 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.
Online subscription: A customer can apply online through the website of the listed scheduled commercial banks. 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. As a result, if you are subscribing to this scheme via online, you will be charged Rs 4,740 per gram.
Tax benefits: The interest on gold bonds shall be taxable as per the provision of the Income Tax Act, 1961. However, the capital gains tax arising on redemption of sovereign gold bonds at maturity has been exempted.
Know Your Customer (KYC) norms: Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s).
