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.

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.

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.