The Sovereign Gold Bond scheme opened for subscription under its seventh tranche of the year on Monday. Bonds under the SGB programme – in which the RBI issues bonds linked to the market price of the yellow metal on behalf of government – are available at Rs 5,051 per unit, which is equivalent to the market value of one gram of gold. After the current tranche, the Sovereign Gold Bond scheme will open for subscription five more times till March 2020. Launched in 2015 along with the Gold Monetisation Scheme, the Sovereign Gold Bond scheme provides gold-linked returns and an additional return of 2.5 per cent per annum. The SGB scheme is an effective way to invest in non-physical gold, say wealth planners.
Here are 10 things to know about the Sovereign Gold Bond (SGB) scheme:
Important Dates: The seventh installment of the SGB program opens for subscription on Monday, October 12, till October 16.
Maturity Period: Gold bonds under the SGB scheme come with a maturity period of eight years, which means the investment is locked in for a period of eight years. However, there is an exit option after the first five years.
Interest Rate: Besides the return linked to the market price of the yellow metal, the gold bonds provide an additional return of 2.5 percent in the form of interest. This interest is payable twice a year.
Who Can Buy: Resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions can invest in the gold bonds.
Investment Limit: Gold bonds can be purchased in the multiples of one unit, up to certain thresholds for different investors. For retail investors, the upper limit is four kilograms – or 4,000 bonds.
Issue Price: Each gold bond (equivalent to one gram of gold) is priced at Rs 5,051 under the seventh instalment. The rate is arrived at on the basis of spot prices provided by the Mumbai-based India Bullion and Jewellers Association (IBJA).
Online Discount: A discount of Rs 50 per unit is available on online purchases (using digital modes of payment). Therefore, under the current issue, an issue price of Rs 5,001 per unit is applicable to those purchasing the bonds online.
How To Buy: The gold bonds can be purchased through commercial banks, the Stock Holding Corporation, designated post office branches, and stock exchanges BSE and NSE.
Tax Implication: The interest earned from gold bonds is taxable. However, the capital gains arising out of redemption are exempted for individual investors.
Should You Buy? “Investors looking to invest in gold should take this route to avail dual benefits – avoid any overhead cost while buying/selling as compared to investing in physical gold, and benefit from the assured 2.5 percent interest payable per annum. Any portfolio should consist of gold anywhere in the range of 10-15 percent or based on the risk-taking appetite of the investors,” said Nish Bhatt, founder and CEO of investment consulting firm Millwood Kane International.