Sovereign gold bond (SGB), issued by RBI on behalf of Indian government is a magnificent alternative investment for physical gold.
SGB yields same benefits as physical gold and it also offers coupons to the investors. Any resident Indian can apply for this bond.
Issue price and redemption price of the bond is fixed in Indian Rupees based on the average price of gold (999 purity) of previous week (Mon – Fri) of issue date or redemption date. Thus on redemption, the investor gets money equivalent to the prevailing market value of physical gold at that time.
Tenure of bond is 8 years and premature redemption is allowed on coupon payment dates after 5th year from the date of issue. Both interest and redemption proceeds will be credited to bank account of the investors.
If the investor wants early exit, it can be carried out by trading through BSE and NSE. Sovereign gold bonds are denominated in one gram of gold and multiples thereof.
Benefits of investing in SGB over physical gold:
- No risk and cost of gold storage
- SGB offers coupon at the fixed rate of 2.75% p.a. (in sixth tranche, 2.5% p.a.) for every half year
- SGB is free of making charges and purity issues like jewel gold
- It can be traded on the exchanges
- Like physical gold, this bond can be used as collateral for loans
- Carries sovereign guarantee both on invested capital and interest
- Capital gain arises on redemption or selling of SGB is tax free
- SGB is transferrable and it can also be gifted to the desired individuals.
- Joint holding is allowed
- Availability of nomination facility
Investors can apply for the bonds through SHCIL, scheduled banks and post offices. Recently, NSE and BSE are also included as receiving offices. Application forms can be collected from banks and post offices; also it can be downloaded from RBI website.
Minimum investment in this bond is 1gm and maximum limit is 500gm. This limit is applicable to individual per fiscal year (April – March).
Until now, six tranches (lots) of issue has been completed by RBI and the subscription of 6th tranche was started on 24th October and closed on 2nd November, 2016. 6th tranche was issued at discounted price, Rs. 50 per gram less than the nominal value.
Risk on investing in SGB:
SGB holds the same risk as physical gold as there is a possibility of loss if the market value of gold faces decline.