How inclined are you towards gold? We Indians have traditionally been investing in goals for years and years. Even financial planners to date advise investing a part of your portfolio in gold for proper diversification. But instead of physical gold, there could be another option open for you. When you buy gold coins and bars as an investment in gold, you are wasting the opportunity of earning some pretty good returns.
Did you know about the gold bonds in the market today? These bonds allow you to capture the price movements of the metal and also pay you a fixed interest, similar to a banks’ fixed deposit scheme. It is simple but also a superior alternative to physical gold investments. Let us see why you should invest in a Sovereign Gold Bond.
What is a Sovereign Gold Bond?
A sovereign gold bond is denominated in grams, just like physical gold. You can avail of it in multiples of 1 gram. So it’s a given that the minimum investment in a sovereign gold bond is one gram.
It is an alternative for investors who are looking to invest in physical gold. For decades earlier, until today, we know that for Indians, the reverence for gold is quite beyond the market.
What would you do if you could own gold without having to inherit it? Without having to safeguard it all by yourself?
Would you not take advantage of the opportunity, or maybe even invest more in it. Locking up gold at home, through the ups and downs, doesn’t it seem a little more complex than it actually sounds? What if there was an alternative? Wouldn’t that soar through the roof for you, making a gold investment more enhanced? Gold is not merely a metal worn and adorned. If that were, then it wouldn’t come to the forefront of investment and play to be a hedge against inflation, would it?
The Indian Government introduced the Sovereign gold Bond scheme in 2015, and for investors, it sure has become a great boon. Over the years, looking back on history, we can see that the market has tremendously witnessed a decline in physical gold demand. These bonds are also some that have been considered to be one of the safest today.
Who Should Invest in a Sovereign Gold Bond?
You should consider diversifying your portfolio with at least 5% – 10% in gold. It is ideal for those with a low-risk appetite since it is a low-risk investment. When compared to actual gold, the cost of buying or selling SGBs is relatively low. In comparison to real gold, the cost of purchasing or selling the SGB is very minimal. SGBs are another option for those who do not want to deal with the difficulties of keeping real gold. This is because it is simple to store in Demat form, and no one can steal it because it is in electronic form.
Key Features of a Sovereign Gold Bond
There are a few questions you can ask before you could start off with investing in a Sovereign gold bond. These points are the key elements of a Sovereign Gold Bond in the market today.
Who is Eligible?
SGB can be invested in by any Indian resident, including individuals, trusts, HUFs, charitable institutions, and colleges. You may also make an investment on behalf of a minor.
What is the denomination value?
The bonds’ worth is measured in multiples of gram(s) of gold, with 1 gram serving as the fundamental unit. The minimal initial investment is one gram of gold, with a maximum of four kilograms of gold per investor (individual and HUF). 20 kg of gold is the limit for institutions such as trusts and universities.
What is the tenure of an SGB?
The sovereign gold bond matures after eight years. However, you can choose to quit the bond after the fifth year (only on interest payout dates).
What is the interest rate offered on an SGB?
On your original investment, the current interest rate for SGB is 2.50% per year. It is only paid twice a year (semi-annually). Typically, returns are tied to the current market price of gold.
Who issues these Bonds?
Only the Reserve Bank of India can issue SGBs on behalf of the Central Government, and they are traded on the Stock Exchange. It is only available in multiples of one gram of gold. It will be issued to investors in the form of a Holding Certificate. It is also possible to convert it to Demat form.
What is the Tax charged on the bond?
According to the rules of the Income Tax Act of 1961, the interest on Sovereign Gold Bonds is taxable. The capital gains tax due to an individual is avoided in the case of SGB redemption. Long-term capital gains are also given indexation benefits to an investor or when the bond is transferred from one person to another.
How does the government sell a gold bond?
Bonds are sold by the government through banks, the Stock Holding Corporation of India Limited (SHCIL), and certain post offices as announced. SGBs are also traded directly or through intermediaries on recognized stock exchanges (National Stock Exchange of India or Bombay Stock Exchange).
Is the bond considered to be safe?
Except for market concerns, Sovereign Gold Bonds carry none of the hazards associated with actual gold. There are no exorbitant design or waste fees here. Furthermore, unlike actual gold, which is a dormant investment, SGBs yield interest.
Can I sell the bond?
Within a certain time frame, you can trade gold sovereign bonds on stock markets (at the discretion of the issuer). For example, after five years of investment, you can trade them on the National Stock Exchange or the Bombay Stock Exchange, among other exchanges.
These gold Sovereign bonds are obviously a new age investment for investors who are looking forward to diversifying their portfolios. And also for the investors who seek a little bit of gold in their investment portfolio. It can be your choice of investment