What is Sovereign Gold Bond and how it works?

In India we are always in love with gold. With change of time and technology , there are options available to buy gold digitally instead of paying making charges or taking hassle for storage . Sovereign Gold Bond is one of such options to not only buy gold digitally but also to earn 2.5% interest p.a. on a half yearly basis . With this post you will understand What is sovereign gold Bond and how it works? 

Investors should have gold in their portfolio as diversification . As per ET report Indian consumed 774 tonnes of gold in 2022 and we are the second largest gold jewellery consumer in the world.

Gold As an Investment :

Gold has lower volatility as compared to equities so it can be mapped with one of financial goals . In case other asset classes are not performing , it will help to hedge against price risk .

What is sovereign gold Bond (SGBs)?

1. As the name suggests it is sovereign i.e. issued by Reserve bank of India (RBI) on behalf of the government. It is one type of government securities denominated in grams of gold. 
2. It helps to replace it with physical gold .
3. You can earn interest of 2.5% p.a. payable half-yearly .
4. Maturity after 8 years with exit option after 5th year.
5. This is listed and tradable securities on the stock exchange .

How is Sovereign gold bond better than Physical Gold?

1. You will get a higher return .
2. It is issued by RBI on behalf of Government of India so it has Sovereign guarantee . 
3. You will get interest in SGB while in case of physical gold you will not get interest .
4. You don’t have to pay any management fees or brokerage fees .
5. No storage cost involved .
6. Tradability is available .
7. Liquidity is limited as compared to physical gold .
8. You don’t have to worry about purity of gold. 
9. You will get capital appreciation/depreciation like physical gold in SGBs.

Nominal Value of Gold Bond

Nominal value of gold bond is considered as a simple average of INR closing price of gold of 999 purity for the last 3 working days of week preceding subscription period as published by Indian Bullion & Jewellery Association (IBJA).

Issue Price :

SGB New 2022-23 Series IV prices are Rs.5,561 per gram. Rs. 50 per gram discount for online application via digital payment mode.Any future price will be declared before issue opens .

How Tax will be applicable in case of Sovereign gold bond ?

1. You will earn interest @ 2.5% p.a. and interest payable half yearly . This interest is taxable and you have to offer income tax as per your tax slab . There will be no TDS.
2. In case of primary issuance and if you hold it till mature or early redemption, capital gain is exempted. It means you will get redemption at the gold rate applicable on the date of redemption and the entire gain is tax free.
3. In case of secondary market sales , Capital gain is applicable as under :
   • If SGBs held for more than three years, it is considered as long term capital gain and it will be taxed @ 20% with indexation benefits
   • IF SGBs held for less than 3 years , it will be considered as short term capital gains &  added to Investors’s Income.

Who can Invest in Sovereign gold bonds ?

1. Individual Investors and HUFs
2. Trusts
3. Universities & Charitable Institutions 

Minimum investment is 1 gram and maximum investment is 4 KGs per financial year in case of Individual including minor & HUFs and 20 KGs in case of non Individuals 

Recap – benefits of Sovereign gold bond

1. You can hold it in digital forms i.e. in your demat account
2. You will get interest @ 2.5% p.a.
3. No GST or making charges
4. No capital gain tax on redemption 
5. No recurring annual charges like Gold ETFs
6. You can trade it on exchanges
7. You can use it as collateral for loans 

From November – 2015 to December- 2022, SGBs have provided a CAGR of 10.45% p.a. 

You can contact your financial advisor, broker or bank to invest in Sovereign gold bonds .

Are you planning to build a modern Investment portfolio? Do read our post How to do Investment Planning ? in this regard. 

Hope you get an idea What is sovereign gold Bond and how it works? Do give your valuable feedback in comment sections .