Sovereign Gold Bond Scheme: Benefits and Features

Sovereign Gold Bond is an initiative by the Government of India that was started in November 2015. It is a scheme that was started under the Gold Monetisation initiative by the government. Sovereign gold bonds are an excellent substitute for investment in real physical gold. RBI issues these bonds on behalf of the government of India. There are plenty of advantages you get by investing in this scheme.

In order to buy these bonds, you need to pay the money to the licensed SEBI broker. The Reserve Bank of India issues these Sovereign gold bonds, which are also traded on the stock exchange of India. When these bonds mature, then on redemption, the cash gets deposited in your registered bank account.

Benefits of Opting for Sovereign Gold Bonds

1. Beneficial than investing in physical gold: SGB is a safe investment in every way since you avail the benefit of the current market price of gold when you redeem the bonds. You also have the option of premature redemption, which again is done against the current market price of gold.
2. Risk-free investment: While investing in SGBs, you still have the risk of losing capital if the price of gold declines. But, the best part is that you hold gold without any risk of losing it since it lacks the physical form. You don't have to bear any making charges or impurity issues while buying these bonds, yet you get to avail the complete benefits of high-profit-margin investing in gold.
3. Investment limits in SGBs: The denomination of the bond is in units of 1 Gram of gold and its multiples. For an individual, the minimum limit for investment in these bonds is 1 gram, and the upper limit of investment allowed is 4 Kg.
For Hindu Undivided families, the maximum limit for investment is 4 kgs, but for trusts or any similar organisations, the upper limit of investment allowed in these bonds is 20 Kgs. If the bonds are jointly held, then the first individual shall be given the investment limit of a subscription of 4 kgs.
4. Return value on SGBs: The rate of interest is 2.5% per annum on the basic nominal value. Half of the interest is paid on a half-yearly basis, and the balance is paid at the time of maturity.
5. The flexibility of withdrawal: The tenure of the bond is for 8 years with exit options in the 5th, 6th and 7th years, which can be availed on interest payment dates.
The redemption price is taken out by taking the simple average of the closing price of gold of 999 purity of the last three working days as published by Indian Bullion and Jewellers Association Limited.
6. Easy accessibility: The bonds are available for subscription at the branches through RBI's e-kuber system. The e-Kuber system can be used through the Internet or INFINET.

If you want to learn about RBI Sovereign Gold Bonds, then click on the link.

The following banks and offices are sent applications through agents or directly for issuance of the bonds:

• Scheduled Commercial Banks (excluding RRBs)
• Stock Holding Corporation of India Ltd (SHCIL)
• Designated Post Offices (as may be notified),
• National Stock Exchange of India Limited and Bombay Stock Exchange Ltd.

Key Features of the Sovereign Gold Bond Scheme

An individual can purchase sovereign bonds for himself or can be purchased by an individual on behalf of a minor, or can be purchased by an individual jointly with some other individual. The nomination can be availed using Form D, and for its cancellation, Form E is required.

• These bonds can be purchased by a Trust, a charitable institution or by HUFs.
• These bonds are issued under section 3 of the Government Securities Act, 2006. The bondholders are issued a Holding Certificate (Form C). One of the beneficial features of the bonds is that these bonds can be converted into a Demat form.
• When you apply for these bonds, the bonds are issued on the 2nd business day of the coming week.
• The nominal value of bonds is found by taking out the average price of 999 purity gold for the last three days of the week, as published by Indian Bullion and Jewellers Association Limited.
• The issue price of the Gold Bonds will be ₹. 50 per gram less than the nominal value to those investors who apply online.     
• The certificates held are printed in coloured ink on A4 size 100 GSM paper.
• The investor can cancel the application until Friday of the week of subscription. The investor cannot partly cancel the subscription at any cost.
• The interest earned on the bonds is taxable under the Income Tax Act 1961.
• The lien marking on the bonds is as per the legal provisions of the Government Securities Act, 2006.

As per the Government Securities Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part III, Section 4 of the Gazette of India dated 1 December 2007, the bonds are transferable by Form F. ​​​​​​

Also Read: Should You Invest in Sovereign Gold Bond Series X

How to Invest in SGBs

SGBs can be purchased from commercial banks, designated post offices, and online through the RBI's e-kuber platform. Investors need to have a PAN card and a bank account to apply for SGBs.

Mode of Payment

The payment for these bonds is accepted in the case of a maximum value of up to ₹. 20,000, or it can be made through the demand drafts/Cheque/e-banking. To purchase the bonds, Know your customer (KYC) formalities need to be done. The following documents are required passport, Aadhar Card, Voter's Identity Card, PAN/TAN.

Comparison of SGB with Physical Gold and Gold ETFs

Risks Associated with SGBs

• Gold Price Fluctuations: The value of SGBs is linked to the price of gold, which can fluctuate significantly. Investors may face losses if the price of gold declines.
• Interest Rate Risk: Interest rates may fluctuate over time, which could impact the attractiveness of SGBs relative to other investment options.
• Liquidity Risk: SGBs may not be as liquid as other investments, such as stocks or bonds. Investors may face challenges in selling their SGBs quickly at a fair price.

Reissuance of the Bond

The RBI has to inform the investor regarding the maturity of the bond, about a month before the maturity date. The branch from where you have purchased these bonds will be required to maintain all your details till the maturity of the bonds. The branch will also keep sending you updates and will also provide services regarding the premature encashment of bonds.

If you want to learn about Sovereign Gold Bond Zerodha, then click on the link.

The Bottom Line

SGBs offer a unique and compelling investment opportunity for those seeking exposure to gold while avoiding the hassles of physical storage. With the added benefits of regular interest income, potential capital gains, and government guarantee, SGBs can be a valuable addition to a diversified investment portfolio.