For centuries, gold has had a special place in Indian homes. Its significance includes cultural and economic aspects. While the interest continues, the old school method of purchasing physical gold is no longer that convenient, considering the high expenses, difficulties, and security threats of storage. To solve these problems, the Government of India launched Sovereign Gold Bonds (SGBs) in 2015 under the Gold Monetisation Scheme. It is a low-risk, innovative avenue for gold investment.
Here’s more on why Sovereign Gold Bonds are popular among investors.
What Are Sovereign Gold Bonds?
SGBs are government securities denominated in terms of grams of gold. The RBI is responsible for the issuance. Individuals can invest in gold without holding it physically. Tranches of SGBs are issued through notifications published by the RBI every 2 to 3 months through press releases, and each tranche is put on subscription for one week. On buying, the investor is given a holding certificate, and this can also be dematerialised and placed in a Demat account for extra convenience and security.
Key Features of Sovereign Gold Bonds
- SGBs have a fixed maturity of 8 years, with payout terms based on the average market price of gold during the previous three working days, as mentioned by the India Bullion and Jewellers Association (IBJA).
- Gold prices tend to go up over long periods of time, so SGBs are currently a great way to look forward to long-term capital gains.
- Apart from capital appreciation, SGBs also provide a guaranteed annual interest, which is paid on a semiannual basis.
Why SGBs Are a Smart Investment Choice
The following benefits draw major investments in SGBs:
Backed by the Government
SGBs are launched by the RBI under the Government Securities Act, 2006, and hence one of the most secure investments. There is no risk of default on principal or interest since it is guaranteed by the central government.
Capital Appreciation with Reduced Risk
Gold prices generally appreciate in the long run and are less volatile compared to the market. Even when there are stock market declines, gold maintains or appreciates in value. This positions SGBs as a good hedge for inflation and economic uncertainties.
Transferability and Tradability
SGBs are very liquid and can be sold on stock exchanges within 15 days of issue. This implies that investors have the ability to sell or purchase their bonds in the secondary market, subject to fluctuations in gold prices. Additionally, they can be freely transferred to others, which makes them suitable for gifting or estate planning. Investors can even pledge these bonds for borrowing, up to 75% of their market value.
Affordable and Safe
One of the biggest advantages of SGBs is that they are easy to invest in. Investors need not worry about storage, purity, theft, or insurance, all issues associated with physical gold. They can store their investment in paper or Demat form, which makes it easy to track and manage.
Tax Treatment
- Interest received is taxed as Income from Other Sources.
- No capital gains tax on redemption at maturity (after 8 years).
- For redemption before maturity, long-term capital gains (after 3 years) are to be taxed at 20% with indexation benefits.
- Short-term gains (up to 3 years) are taxed according to the investor’s income slab.
Who Should Invest in Sovereign Gold Bonds?
SGBs are suitable for:
- Low-risk appetite investors who want consistent and inflation-outpacing returns.
- Those who wish to diversify their portfolio with lower exposure to the stock market.
- Those preparing for long-term objectives such as retirement, education for children, or savings for wealth creation.
- Investors seeking gold returns without holding gold in the physical form.
Before investing, it’s wise to assess your financial goals, time horizon, and risk tolerance. Additionally, stay updated on RBI’s subscription windows when you apply for SGB bond.
Conclusion
Sovereign Gold Bonds combine the age-old value of gold with the advantage of contemporary financial offerings. Backed by the government, tax benefits, capital appreciation and fixed interest earnings, all without the hassles of physical holding of gold, SGBs are turning into a popular investment option for new as well as experienced investors for the balance of security, returns, and convenience they offer.