SGBs are financial instruments backed by actual gold. They can substitute for gold in one’s possession. Bond issuance price and redemption value are both paid in cash. The Reserve Bank of India issues India’s Bond. As an alternative to buying gold reserves, consider Sovereign Gold Bonds (SGBs). The bonds pay interest and it may appreciate in value. Certain hazards associated with physical gold are removed by these Indian government bonds.
A Sovereign's Gold Worthy Benefits
How SGB Works
- The RBI will issue SGBs throughout the year. These securities can be bought from banks, brokers, the mail, and the internet.
- The RBI will sell fresh SGBs every year. If you missed the last one, don’t worry from now with SWARAJ FINPRO you won’t miss any opportunity to invest.
- Physical, digital, and dematerialized bonds can be purchased. After buying bonds, investors can transfer them to demat accounts. RBI then processes the dematerialization and stores the bonds till it’s complete.
- Dematerialization is a post-allotment option. Individual investors who don’t want to buy from the RBI can acquire them on the secondary market.
Comparison Of Sovereign Gold Bonds With Other Products
Why Should You Invest in SGB?
|Points||Physical Gold||Gold ETF||Sovereign Gold Bonds|
|Returns||Lower than actual return on gold.||Lower than actual return on gold.||Higher than actual return on gold.|
|Safety||Risk on handling physical gold.||High.||High.|
|Purity of Gold||Purity of Gold always remains a question.||High as it is in electronic Form.||High as it is in electronic Form.|
|Wealth Tax||Wealth tax applicable at 1% on the total valuation of the assets every year.||Not Applicable.||Not Applicable.|
|Capital Gain||Long term capital gain tax applicable after 3 years.||Long term capital gain tax applicable after 3 years.||Long term capital gain tax applicable after 3 years (No Capital Gain Tax if held till maturity).|
|Collateral against Loan
| Tradability Exit Route
||Conditional.||Tradeable on Exchange.||Tradeable on Exchange Redemption 5th year onwards with Government of India.|
|Storage Cost||High.||Very Low.||Very Low.|
Features Of SGB (Sovereign Gold Bonds)
Before deciding to invest in a Sovereign Gold Bond Scheme, it is important to understand its essential features.
The bonds will only be sold to Indian residents, including HUFs, Trusts, Universities, and Charities.
Bonds will be issued in denominations of one gramme of gold or any multiple of that amount.
The investors will earn interest on their initial investment at the rate stated by RBI for a particular tranche at launch. Interest is semi-annual.
You must follow KYC rules when buying digital gold or SGB. You must verify your identity and address by submitting a PAN card, passport, driver's license, or voter ID card.
The bond's tenor is 8 years, but it can be redeemed early after the fifth year on coupon payment dates. Demat-held bonds can be traded on exchanges. It's transferable to another investor.
The potential for financial loss exists if the gold price drops. However, the investor suffers no losses with respect to the gold units for which he has already paid.
Only Indian citizens or permanent residents (as defined by the Foreign Exchange Management Act of 1999) are permitted to invest in SGB. Other client categories, like corporations, partnerships, LLPs, trusts, etc., can't invest.
Bonds are issued in increments of 1 gramme of gold. It has a one-gram minimum investment and a 500-gram maximum per person per fiscal year (April–March). If joint, the limit applies to the first applicant.
Yes, banks, financial institutions, and non-banking financial companies can use these securities as loan collateral (NBFC). The Loan to Value ratio will be the same as for regular gold loans, as set by the RBI from time to time.