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Sovereign Gold Bond Scheme (SGB): Benefits, Eligibility, and Investment Options

Team AckoJan 18, 2024

India has a deep-rooted cultural affinity towards gold. Traditionally, people in India have considered it as a safe investment, often holding it in the form of jewellery or coins. However, this practice poses certain challenges in terms of security and liquidity. To address these concerns and to promote financial savings, the Sovereign Gold Bond Scheme offers an attractive alternative for individuals looking to invest in gold.

Contents

What is the Sovereign Gold Bond Scheme?
Why invest in a Sovereign Gold Bond Scheme?
Benefits of the Sovereign Gold Bond Scheme in India
Eligibility for Sovereign Gold Bond Scheme
How to apply for the for Sovereign Gold Bond Scheme
Risks associated with the Sovereign Gold Bond Scheme
Investment limit in Sovereign Gold Bond Scheme
Frequently Asked Questions (FAQs)

What is the Sovereign Gold Bond Scheme?

The Sovereign Gold Bond Scheme in India is a financial instrument designed to offer citizens a unique opportunity to invest in gold without physically possessing it. It is initiated by the Government of India.

Sovereign Gold Bonds (SGB) are a type of government security. They are classified in grams of gold and serve as an alternative investment option to hold physical gold. and are issued by When investors purchase Sovereign Gold Bonds, they are held for a specific maturity period, after which they are encashed at the prevailing market rate of gold.

SGBs offer investors the benefit of earning interest on their investment, which is not available in physical gold holdings. The interest rate is fixed and payable semi-annually to the investors. Additionally, SGBs are considered a safe and reliable investment since they are backed by the Government of India and issued by India’s apex banking body, the Reserve Bank of India (RBI).

Why invest in a Sovereign Gold Bond Scheme?

Here are some convincing reasons why you should invest in a Sovereign Gold Bond Scheme.

SGBs provide the convenience of owning gold in digital form, eliminating the need to store and secure physical gold. Investors can enjoy the benefits of holding gold without the worries of safekeeping.
Unlike physical gold, SGBs offer an additional fixed interest rate of 2.50% per annum on the initial investment amount. This provides an opportunity to earn regular income on top of potential gains from gold price appreciation.
SGBs are tradable on the stock exchange, providing liquidity to investors who may want to sell their holdings before maturity. Additionally, they can be used as collateral to avail loans, offering a dual advantage for investors.
One of the significant benefits of investing in SGBs is that they are exempt from Capital Gains Tax upon redemption. This tax exemption enhances the overall returns for investors and makes SGBs a tax-efficient investment option.

Benefits of the Sovereign Gold Bond Scheme in India

Investing in the Sovereign Gold Bond Scheme offers several advantages, making it a popular choice among investors:

Safety and security: As the scheme is backed by the Government of India, the investment carries a sovereign guarantee, ensuring the safety and security of the invested capital.
Earning interest: Apart from the potential appreciation in gold prices, investors also earn fixed interest on their investments. This interest rate is determined by the government and is payable semi-annually.
No storage hassles: Unlike physical gold, investing in gold bonds eliminates the need for safekeeping and storage, reducing the risk of theft or damage.
Liquidity: The bonds are traded on stock exchanges, providing investors with a liquid investment option, enabling them to buy or sell as per their convenience.
Tax efficiency: The interest earned on these bonds is taxable, but the capital gains tax is exempted upon redemption. Additionally, the absence of wealth tax further adds to its tax efficiency.
Capital appreciation: The value of the gold bonds is linked to the prevailing market prices of gold, allowing investors to benefit from potential capital appreciation.
No making charges or wastage: Unlike physical gold purchases, there are no making charges or wastage associated with investing in gold bonds, making it a cost-effective option.
Online application: The application process for investing in the Sovereign Gold Bond Scheme is simple and can be done online through designated banks or financial institutions.

Eligibility for Sovereign Gold Bond Scheme

Here’s the eligibility criteria for the Sovereign Gold Bond Scheme.

Individuals in India (as per the Foreign Exchange Management Act) are eligible to invest in Sovereign Gold Bonds (SGBs).
Other eligible investors include Hindu Undivided Families (HUFs) and trusts. Along with them, universities and charitable institutions are also eligible.
Moreover, individual investors who subsequently change their residential status from resident to non-resident are allowed to continue holding their SGBs until early redemption or maturity. This provision enables non-resident individuals to retain their SGB investment, even if they shift their residential status, ensuring continued benefits from their investment until the bond's maturity.

How to apply for the for Sovereign Gold Bond Scheme

The application form for Sovereign Gold Bonds (SGBs) will be made available by the issuing banks, designated Post Offices, etc. Additionally, interested investors can download the application form from the Reserve Bank of India's (RBI) website. Some banks may also offer the convenience of applying online through their website or digital platforms. This allows investors to access and fill out the application form with ease, making the process more convenient and accessible.

Risks associated with the Sovereign Gold Bond Scheme

Investing in gold, including Sovereign Gold Bonds (SGBs), carries the risk of capital loss if the market price of gold declines. However, it's important to note that while the market value of the investment may fluctuate based on gold prices, the investor does not lose in terms of the quantity of gold they have paid for. It's essential for investors to consider their risk tolerance and long-term investment goals when investing in gold or any other financial instrument.

Investment limit in Sovereign Gold Bond Scheme

Here are the details related to investment limits in the Sovereign Gold Bond Scheme.

The lowest investment in the Bond is one gram, and there is a maximum limit of subscription for each fiscal year (April to March).
For individuals, the highest limit is four kg, along with HUF. For trusts and likewise institutions notified by the government, the maximum limit is twenty kg per fiscal year.
In case of joint holding, the maximum limit applies to the first applicant.

Frequently Asked Questions (FAQs)

Here’s a list of FAQs related to the Sovereign Gold Bond Scheme in India.

Is there a provision for Joint Holding?

Yes, Joint Holding is a possibility.

Is it possible for a minor to invest in a Sovereign Gold Bond?

Yes, a minor can invest, but the application needs to be made on behalf of the minor by their guardian.

What are the Know Your Customer norms involved?

A Permanent Account Number (PAN) is needed for processing.

If I am in need of taking a loan, can I use this as collateral?

Yes, you can use this as collateral for a loan.

Is holding the bonds in a demat form allowed?

Yes, a demat account can hold these bonds.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.