Precious Metals

Information

What is Sovereign Gold Bonds (SGB)?

  • Sovereign Gold Bonds (SGB) are government securities denominated in gold. The bonds are issued by the Reserve Bank of India on the government’s behalf. Hence these gold bonds will be a good substitute for physical gold. The purchase and redemption upon maturity both happen in terms of cash and not gold.
  • SGBs are debt securities that were introduced in November 2015 and enable one to own gold in certificate format. SGBs are fully transparent, and they also track the import-export value of the gold. Since the government backs it, SGBs are considered as safe. They are denominated in grams, and investors can purchase these in terms of grams. The minimum investment in SGBs is one gram, and the maximum is 4 kg for individuals and Hindu Undivided Family HUF. However, for trusts and similar entities, 20kgs is the maximum investment.
  • The return from SGBs is in terms of interest and capital appreciation. Investors get a fixed interest rate of 2.5% in a financial year Moreover, it is over and above the gold price return. The interest payments are made every six months. The tenure of these bonds is eight years, and the bonds mature after this period.
  • The Sovereign Gold Bonds India are sold at the last three days’ simple average of the closing price of gold of 999 purity preceding the subscription period. The gold prices will be the ones published by the India Bullion and Jewellers Association Limited, and they will be denominated in INR.

Tenure and Premature withdrawals:

  • The tenure of SGBs is eight years. The Sovereign Gold Bonds in India have a mandatory lock-in period of five years. However, the investor can withdraw the bond after the 5th The withdrawals are allowed only on interest payout dates.

Interest Rates:

  • The gold bond rate of interest is 2.5% in a financial year currently. The interest payout is twice a year on the nominal value of the investment. The returns are linked to the current market price of the gold.
Taxation

The interest on these bonds is taxable as per the Income Tax Act, 1961. On redemption, there is no capital gains tax on this. Also, the long term capital gains come with indexation  benefits.