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written by | April 14, 2022

What is the Sovereign Gold Bond Scheme?

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Historically, we Indians have invested in gold and finance, and experts also recommend putting a portion of your investable capital in gold to diversify your wealth. Because of their appealing attributes, Indians have recently begun buying Sovereign Gold Bonds (SGB) rather than real gold.

The government established the Sovereign Gold Bond Scheme in Nov 2015 as part of the Gold Monetization Scheme. The Reserve Bank of India (RBI), in collaboration with the Government of India, opens the assets for subscriptions in instalments underneath the plan. The RBI publishes the program's terms & conditions regularly. The membership for an SGB would be accessible as per the schedule released. The RBI will announce the SGB rates in advance of each fresh tranche via a media release.

Did you know?

Did you know? The Indian government recently announced the dates and price of the SGB Scheme 2022-23 (Series 1). This time, the SGB scheme is priced at 5091 per gram. Subscriptions will be open until 24th June 2022, with a settlement date of 28th June.

Learn All About Sovereign Gold Bond Returns and SGB 2022

What Are Sovereign Gold Bonds?

Sovereign Gold Bonds, also known as SGBs, are gold securities issued by the Reserve Bank of India in favour of the Indian government. The gold in these bonds is sold for each unit, with each unit deriving its worth from underpinning one gram of pure gold. The authorities establish the cost by averaging the ending values of gold for the three most recent business days before the registration period.

The India Bullion and Jewellers Association Limited published these price movements. The redeeming price is likewise determined using the most recent database schema from the same sources. SGBs are simple to purchase and manage, with a period of 8 years and a half-yearly cost of borrowing is 2.5%. The limit of every single purchase is a max of four kgs each fiscal year, while the limit for trust purchases is up to 20kgs. Without a PAN card document, you cannot purchase the SGBs, and without this, there is no permission for investment.

Also Read: A Brief Overview of Gold Loans

Who Can Invest in Sovereign Gold Bond Schemes?

Under the Foreign Exchange Management Act, you can invest in an SGB individually, HUF, trusts (either non-profit or not) or university resident. As guardians, anyone can invest in favour of a child. To purchase the securities, one must first get a PAN. Although a foreigner cannot participate in an SGB, they may keep bonds obtained as a design of a domestic investor until maturation. These bonds are available for purchase from banks, stock-keeping corporations, postal offices and capital markets.

One has to fill the registration form for an SGB with at least a minimum of 1 gram and in multiples of 1 gram, according to the highest allowable limits for the investment group. Each fiscal year, a person or a HUF may purchase up to 4 kgs in a Sovereign Gold Bond, and other qualified organisations may spend approximately 20 kgs each year.

These restrictions apply to capital invested via initial subscriptions and stock exchanges transactions. One can own SGBs individually or jointly. However, the allowable maximum will only apply to the first owner. The buyers can nominate either in regards to securities subscribed for or acquired. An SGB is also an option for those who do not like to deal with the inconveniences of keeping actual gold. It is very simple to preserve in dematerialised form, and no one can rob as they are in digital form.

Why Should You Invest in Gold Bonds?

Because the investor obtains the current market value at the time of release or premature release, as there is complete protection to the total gold purchased. An SGB is a more suitable alternative for genuine gold, and the risks and costs of storing aren't longer a concern. After maturity, buyers are assured of the current market cost of gold and periodic interest. An SGB is clear of obstructions like production costs and authenticity in the instance of gold in the shape of ornaments.

Advantages of Sovereign Gold Bonds

  1. Absolute Safety

Apart from market worry, Sovereign Gold Bonds do not risk having real gold, and there has been no excessive plan or squander charges here. Furthermore, unlike real gold, it is a latent asset, and SGBs yield interest.

  1. Extra Income

The most current fixed rate allows you to receive a guaranteed yearly rate of return of 2.50% (on the offer cost).

  1. Indexation Benefit

Long-term investment returns resulting from bond transfers are eligible for indexation advantages. Also, there is a governmental guarantee on both the original and the interest.

  1. Tradability

You may sell an SGB on stock markets (at the issuer's discretion). For example, after investing for five years, you can sell assets on the National Stock Exchange or the BSE, among several other exchanges.

  1. Collateral 

Many banks receive an SGB as a guarantee towards Demat-pled loans. As a result, after fixing the loan-to-value proportion to the price of gold, they will regard it as a gold loan. IB and Jewellers Association Limited decided this.

How to Invest in Sovereign Gold Bonds?

These bonds are available for purchase from banks, stock-keeping corporations, postal offices and capital markets. To encourage investors to acquire SGBs online, the government grants a concession of ₹50 per gram to all those who do it electronically. One has to fill the registration form for an SGB with at least a minimum of 1 gram and in multiples of 1 gram, according to the highest allowable limits for the investment group. Each fiscal year, a person or a HUF may purchase up to 4 kgs in Sovereign Gold Bond, and other qualified organisations may spend approximately 20 kgs each year. These restrictions apply to capital invested via initial subscriptions and stock exchanges transactions.

Eligibility for Sovereign Gold Bond Scheme

You are eligible for the program for Sovereign Gold Bonds when you are:

  • Individual residency
  • In favour of a child, a resident individual
  • Undivided Hindu family
  • Trusts, universities and Non-Profit Organisations
  • PAN number is mandatory

Also Read: Top 10 Gold Loan Companies in India

Features of Sovereign Gold Bonds

  1. Tax Treatment

According to the Income Tax Act of 1961, profit on Sovereign Gold Bonds is chargeable. In the case of SGBs, redemption waiving of tax happens for single capital gains. Furthermore, long-term investment income is granted indexation advantages to an owner or when moving the asset from one individual to the other.

  1. Eligibility for SLR

When the banks buy bonds through invoking lien, hypothecation, or pledging, one can consider it for SLR. The Statutory Liquidity Ratio refers to the amount of capital that a financial institution must have in gold, money, or authorised assets before it may extend credit to consumers.

  1. Issuance of Bonds

Only the Reserve Bank of India can release SGBs favouring the central government, and the list will be available on the stock market. It is only available in multiple sets of one gram of gold. The bond issue is in ownership certification to the buyers, and it is also possible to transform it to Demat form.

  1. KYC Documentation

You must adhere to a certain know-your-customer standard when purchasing real gold. One must complete the KYS by sending copies of identification evidence, including a PAN card. You may provide a passport, driver's licence, or voting identity card for validation for address proof.

Risks Involved in Buying SGBs in 2022

If the current value of gold goes less than its actual cost, there's also a danger of losses. It is not a danger particular to the SGB type of gold investing but relevant to all investment firms. The RBI, on the other hand, guarantees that the buyer would never lose the amount of gold granted to them.

Conclusion

The SGBs intended to make gold investment easier. It also offers tax advantages upon maturity, although it does not relate to trading. As a result, most people who purchase these securities do so with a long-term goal. It is also evident by SBG's minimal market activity on the stock exchange. Remember that SGBs are a wonderful way to broaden your investment by including gold as a financial asset. Nevertheless, before you purchase, take the time to learn all there is to know about them.
Follow Khatabook for the latest updates, news blogs, and articles related to the gold industry.

FAQs

Q: What is the interest rate?

Ans:

The securities pay interest at a set rate of 2.50 % per year on the original investment.

Q: What are the upper and lower limits of investment?

Ans:

The lowest deposit in the bonds is one gram, with a maximum purchase restriction of 500 grams per individual every financial year. The restriction only pertains to the first petitioner when it is joint ownership.

Q: Who can invest in SGBs?

Ans:

As specified by the Foreign Exchange Management Act of 1999, persons residing in India may engage in an SGB. Persons, HUFs, corporations, universities, charity institutions, and so forth are all potential investors.

Q: Is there any danger in buying an SGBs?

Ans:

If the marketplace value of gold falls, there is a danger of incurring losses. However, the buyer doesn't forfeit the gold pieces he has paid for.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.