Sovereign Gold Bond (SGB) Scheme
Sovereign Gold Bond (SGB) Scheme
Sovereign Gold Bonds (SGBs) are a popular investment option in India, especially for those interested in diversifying their portfolio with gold.
Sovereign Gold Bond (SGB) Scheme:
- Introduction:
- Launched by the Government of India in November 2015.
- Aims to provide an alternative to physical gold and reduce the demand for gold imports.
- Issuing Authority:
- Issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- Features:
- Denomination: Bonds are issued in multiples of one gram of gold.
- Tenure: 8 years, with an exit option after the 5th year.
- Interest Rate: 2.5% per annum, payable semi-annually.
- Gold Price Linkage: The value of the bond is linked to the market price of gold.
- Tax Benefits: Interest earned is taxable, but capital gains tax is exempt if held till maturity.
- Eligibility:
- Available to individuals, HUFs, trusts, and similar entities.
- Joint holding is allowed.
- Subscription Process:
- Periodicity: The bonds are offered in tranches throughout the year.
- Application: Investors can apply online or through designated banks, post offices, and financial institutions.
- Pricing: Issued at a price based on the current market price of gold.
- Redemption:
- Redeemable in cash on maturity, based on the value of gold.
- Early redemption is allowed after 5 years.
- Advantages:
- No Storage Issues: Unlike physical gold, SGBs eliminate the need for storage.
- Safety: Issued by the government, thus considered a safe investment.
- Returns: Provides returns in the form of interest plus capital appreciation linked to the gold price.
- Drawbacks:
- Liquidity: While redeemable after 5 years, it might not be as liquid as physical gold.
- Tax Implications: Interest earned is taxable under the Income Tax Act.
- Market Impact:
- Helps in reducing the demand for physical gold and contributes to a reduction in the current account deficit.
- Recent Developments:
- Updates and changes in terms are periodically announced by the RBI and the government.