The next tranche of the Sovereign Gold Bond (SGB) opens for subscription today (February 12), with an issue price of Rs 6,263 per gram. The plan will be open for subscription until February 16. The term of the Bond will be eight years with an exit option in the fifth year, to be exercised on the interest payment dates.
The Gold Bonds will be issued as Shares of the Government of India under the GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion to demat form.
SGBs are public securities denominated in grams of gold. They are substitutes for holding physical gold. Investors must pay the issue price in cash and the bonds will be redeemed in cash at maturity. The bond is issued by the Reserve Bank on behalf of the Government of India. The amount of gold the investor pays for is protected as he receives the current market price at the time of redemption/premature redemption. The SGB offers a superior alternative to holding gold in physical form. Storage risks and costs are eliminated. Investors are assured of the market value of gold at maturity and periodic interest. SGB is free from issues like charges and purity in case of gold in the form of jewellery. The bonds are held on the books of the RBI or in demat form, eliminating the risk of loss of securities etc.
Investors who apply online and make payments through 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 commercial banks, post offices and stock exchanges.
Interest is paid at a fixed rate of 2.50% per year and is fully taxable. However, the profits earned through reimbursement are completely tax-free. There is no TDS on the interest you receive from your investment in SGB. You are also allowed to transfer the bond before maturity and get an indexation benefit.
If you redeem the bond after maturity, even capital gains tax will be exempt. However, the interest is fully taxable according to your income tax table.
So should you invest?
“If you have decided to invest in gold because it is a hedge in times of uncertainty, we would say that 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 It is superior to all other forms of gold because it provides a guaranteed interest rate of 2.5 percent each year. This is on top of the price appreciation of gold. However, the interest earned each year is subject to With SGB, you won’t pay any capital gains tax if you hold your investment to 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,” Value Research said in a note.
However, the only drawback is liquidity in the first five years, because many buyers may not be found on the stock market. However, this problem disappears after the sixth year as you can collect your SGB directly from the RBI.
How to invest?
You can easily invest in sovereign gold bonds in any designated bank like SBI and HDFC Bank. You can request it through the website of the bank in question in the ‘Investment’ tab. Each bank will have a menu-based process, but generally the methods are the same.
“If you wish to apply physically, you can do so by collecting subscription forms and submitting them to the designated banks with your payment. You will need your PAN/Aadhaar cards to apply as your KYC details will be verified and the vouchers will be issued to you.” said brokerage Motilal Oswal in a note.
Motilal Oswal asks investors to consider the following before buying sovereign gold bond online
1. When the government opens a window every two to three months, investors can buy Sovereign Gold Bonds in the primary market. For a week, the problem window is open. As a result, you should plan ahead to purchase your sovereign gold bond online.
2. SGBs have gold as their underlying investment option, which is linked to the market. The amount of money you will raise when your bond matures is determined by gold rates at that 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 investment period of 8 years, with investors having the option to withdraw after five years.
5. Selling your units on the secondary market could lead to profit or loss. On the secondary market, you may not be able to find enough buyers.
6. The ability to reinvest the proceeds once the bonds have matured is limited. Sovereign gold bond issues may not be available for purchase.
First published: February 12, 2024 | 09:13 IS