Sovereign Gold Bonds Series X: Should you Invest?

Created on 04 Mar 2020

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Updated on 05 Mar 2020

person confused whether he should invest in sovereign gold bonds or not

It’s the start of the month, the time when your salary gets credited in your wallet. After paying off your bills, you might tend to look out for avenues to invest a chunk of your income and save some for other expenses.

Besides bank-based savings, gold has always topped the list when it comes down to the "most favourite investment option". Indians in general, possess a profuse love for gold.

Gold has been one of the safest investment havens which most investors and commoners worldwide prefer. And for investors who are looking forward to having a diversified portfolio, then it is advisable to hold at least 5-10 per cent of the assets in the form of gold or gold-related securities. Other than the physical form of gold and ETF one best way to invest in gold will be sovereign bonds. SGB’s are securities that are linked to the value of gold.

The RBI on March 2nd opened the subscription for Series X Sovereign Gold Bond Scheme (SGB). The last date for subscription is March 6th, and the certificates will be issued by March 11th. Individual investors, HUF’s, universities and charitable trusts can subscribe sovereign gold bonds.

They can subscribe for these bonds via agents, designated post offices, banks, NSE, BSE or through Stock Holding Corporation of India. Apart from the sovereign gold tax benefit, an attractive interest is also provided. Read further to know the details.

Why does government issue bond based Sovereign Investment?

Indians consume not only fuel in huge amounts, but also gold.  As per 2015, India alone holds more than 24000 tonnes of gold.  Most of them are imported which is quite expensive. Sovereign Gold Bonds are a way through which the government can cut down the import of gold. This will ultimately help in reducing the trade deficit and current deficit.

Important things to be aware of before Investing

The government has fixed the minimum amount of investment in the denomination of one gram. Indian Bullion and Jewellers Association (IBJA) price it at Rs.4260. This is based on the average closing price of the three business days prior to the date of issue. Investors who apply online will be subject to a discount of Rs 50 per gram. Thus, they will have to pay Rs.4210 for one gram of gold. The bonds can be redeemed at the value that gold holds during its maturity.

The maturity period is eight years. However, the investors, if required, can either sell it at the stock exchange or liquidate it. Liquidation or encashment can be done only in the 5th, 6th and 7th year from the date of issue. However, in cases of early withdrawal, capital gains will be taxed of 20.8%.

What do you get?

One of the most attractive features is the annual interest of 2.5% on the bonds. TDS is not charged upon it. It is added to the investor's income and taxed as per the income slab rates. Apart from this, if you incur any capital gains on maturity, then it is totally tax-free.  However, you cannot expect the same benefit in other gold-based investments. Also, it is not applicable if you withdraw your investment before maturity.

So, Should you Invest?

Gold has been experiencing a constant uptrend during the last couple of years due to various factors, which include the trade war, coronavirus, etc. If you are looking for a long-term investment avenue, then this might be a good option. Buying and selling physical gold is not the same as dealing with Sovereign Gold Bonds.

Physical gold and other gold-based securities can attract a number of taxes. For gold-related securities, you are required to pay TDS. Physical gold, on the other hand, invites a GST of 3% and when you want to sell, you are not going to get the exact market price. This might be because of wastage or purity issues that you might incur.

So a sovereign bond, which offers you an attractive dividend and capital gain at maturity, is a safe and secure place to put your money into. Having said that, also bear in mind that the investment will be effective only if you can hold it for a period of 8 whole years. Though it has exit options, they might not be profitable.

Also Read: Benefits and Feautures of Sovereign Gold Bond Scheme

So if you have any obligations, which have to be met at the end of 8 years like children’s wedding, etc., then you can definitely make your investments into sovereign bonds. Apart from that, investments are always subject to risk. So make your decisions deliberately.

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