07
Jul
What is Sovereign Gold Bond (SGB)?
What is Sovereign Gold Bond (SGB)? Who is the issuer?
- SGBs are government securities denominated in grams of gold.
- They are substitutes for holding physical gold.
- Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
- The Bond is issued by Reserve Bank on behalf of Government of India.
- The sovereign gold bond scheme was launched in November 2015.
- Its objective is to reduce the demand for physical gold and shift a part of the domestic savings (used for the purchase of gold) into financial savings.
Buy and Sale
- Investors have to pay the issue price in cash and the bonds will be redeemed (bought back by the issuer) in cash on maturity.
- Issue price is the price at which bonds are offered for sale when they first become available to the public.
- Apart from having a chance to gain from the rise in gold prices at the time of redemption (capital gain), the investor gets a fixed rate of interest on the investment amount throughout the tenure of the fund.
- The government will pay an interest at the rate of 2.5% per annum. The interest is payable semi-annually.
Sovereign gold bonds have a tenure of eight years, with exit options are available from the fifth year.
- The Bonds will be restricted for sale to resident individuals, Hindu Undivided Families (HUFs), Trusts, Universities and Charitable Institutions.
- The minimum permissible investment unit is 1 gram of gold.
- Investors can buy these bonds through designated scheduled commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited, and designated post offices.
- One can also buy these bonds through National Stock Exchange of India Limited and Bombay Stock Exchange(BSE) Limited.
Advantages of investing in gold bond
- For investors it is advisable to invest in gold for portfolio diversification.
- Sovereign gold bonds are considered one of the better ways of investing in gold as along with capital appreciation an investor gets a fixed rate of interest.
- Apart from this, it is tax efficient as no capital gains is charged in case of redemption on maturity.
- Sovereign gold bonds are a good way to ensure an investment that does not need physical storage of gold.
Disadvantages of sovereign gold bonds
- This is a long term investment unlike physical gold which can be sold immediately.
- Sovereign gold bonds are listed on exchange but the trading volumes are not high, therefore it will be difficult to exit before maturity.