What are 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. These gold bonds are a substitute for holding physical gold. The purchase and redemption upon maturity both happen in cash and not gold.
SGBs are debt securities that were introduced in November 2015 which enabled you to own gold in certificate format. SGBs are issued by the Reserve Bank Of India and are backed by the Government Of India and hence are one of the safest financial instruments. To ensure that the SGBs are within the reach of the common man SGBs are denominated in grams, and you can purchase them in 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.
SGB offers returns to you in 2 ways: Fixed Interest & Capital Appreciation. As an investor, you get an assured return of 2.5% per year on your investment as interest. The interest payments are made every six months. Capital appreciation however has no fixed limits as we all know how gold prices have risen continuously over the last few decades. Moreover investing in SGB would ensure that your investment portfolio is properly diversified and hedged. Gold is always considered a safe investment option whose prices tend to rise when the stock market falls. The tenure of these bonds is eight years, and the bonds mature after this period.
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, you can redeem the bond after the 5th year. The redemptions are allowed only on interest payout dates.
Invest In Other Precious Metals:
How Can One Invest In Other Precious Metals?
Investment can be made in other precious metals such as Silver & Platinum through international ETFs (Exchange Traded Funds) available in foreign markets. Such ETFs have direct underlying exposure to the relevant precious metals.
These international ETFs offer diversification in precious metals over and above gold which can act as a hedge against inflation and are available through the foreign equity investment platform provided by us.
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.