March 4, 2024

The next tranche of Sovereign Gold Bond (SGB)opens for subscription today ( 12 February), with an issue price of Rs 6,263 per gram. The scheme will be open for subscription until 16 February.  The tenor of the Bond will be for eight years with exit option in the fifth year, to be exercised on the interest payment dates. 

The Gold Bonds will be issued as Government of India Stocks under GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into demat form.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Investors who apply online and make payments through the digital mode will receive a discount of Rs 50 per gram, resulting in an issue price of Rs 6,213, the Reserve Bank of India said. The Sovereign Gold Bonds will be sold through various channels including scheduled commercial banks, post offices, and stock exchanges.

Interest is paid at a fixed rate of 2.50% per annum and is fully taxable. However,  profits made on redemption are fully tax-free.   No TDS is applicable on the interest you receive from your SGB investment. You are also allowed to transfer the bond before maturity and gain indexation benefit.

If you redeem the bond after maturity, even the capital gains tax will be exempted. However, the interest is fully taxable as per your income tax slab.

So, should you invest? 

“If you have decided to invest in gold because it is a hedge during uncertain times, we’d say sovereign gold bonds are the best way to buy gold.SGB is backed by the government of India, which means it is very safe.SGB is superior to all other forms of gold because it provides a guaranteed 2.5 per cent interest rate each year. This is over and above the appreciation in the price of gold. However, the interest you earn each year is taxed.With SGB, you don’t pay any capital gains tax if you hold your investment until maturity, which is eight years. For example, let’s say you buy the current series of SGB today and hold it for eight years, the gains you make on your investment will not be taxed,” said Value Research in a note. 

The one downside though is liquidity in the first five years because you may not find many buyers on the stock exchange. However, this problem vanishes from the sixth year onwards, as you can get your SGB encashed from the RBI directly.

How to invest? 

You can easily invest in Sovereign Gold Bonds at any designated bank like SBI and HDFC Bank. You may apply for the same through the website of the bank in question under the ‘Investment’ tab. Each bank will have a menu-driven process, but in general, methods are the same.

“If you wish to physically apply, you can do so by collecting subscription forms and submitting them to designated banks with your payment. You will need your PAN/Aadhaar Cards to apply as your KYC details will be verified and you will be issued the bonds,” said brokerage Motilal Oswal in a note. 

Motilal Oswal asks investors to consider the following before purchasing a Sovereign Gold Bond online

1. When the government opens a window every two to three months, investors can purchase Sovereign Gold Bonds on the primary market. For a week, the problem window is open. As a result, you must plan ahead of time for the online purchase of your sovereign gold bond.

2. SGBs have gold as its underlying investment choice, which is market-linked. The amount of money you’ll collect when your bond matures is determined by gold rates at the time.

3. At maturity, a sovereign gold bond is tax-free. It gives sovereign gold bonds an advantage over gold ETFs and mutual funds as investment possibilities.

4. The bond has an 8-year investment period, with investors having the option to withdraw after five years.

5. Selling your units on the secondary market could result in a profit or a loss. In the secondary market, you might not be able to find enough buyers.

6. The ability to reinvest the proceeds once the bonds have matured is limited. It’s possible that sovereign gold bond issues won’t be accessible for purchase.

First Published: Feb 12 2024 | 9:13 AM IST