Sovereign Gold Bonds Scheme - Seeker's Thoughts

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Tuesday, 15 January 2019

Sovereign Gold Bonds Scheme


Historically Indian women are crazy for Gold; gold is more than a precious metal. In fact, the respect for gold is beyond its market value for a common man.

 However, the making charges of gold are quite too high usually. There, Government of India and RBI have come up with many alternatives like gold ETFs, gold bonds etc. Now anyone can own gold in ‘certificate’ format.
Government of India has decided to issue new series of sovereign gold bonds between January and January 18 at Rs 3,214 per gram and those who subscribe to the bonds online will get a discount of rs 50 per gram.

What are sovereign Gold Bonds?
Sovereign Gold Bonds are government securities denominated in grams of gold. They are substitute for holding physical gold. SGBs are government securities hence safer to invest. Investors have to pay the issue price in cash to any agent, authorized by SEBI and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of government of India.

Who can get invest in SGBs?
People who love to keep Gold and invest a lot in buying Gold can get SGB, it is a low –risk investment, and it is perfect for investors with low risk to get loss. People can earn from it as it will give fixed income bi-annually. Compare to physical Gold, the cost to purchase or sell SGBs are quite low.

Features of Sovereign Gold Bonds

1-      Sovereign Gold Bonds can be used for loans; it will be issued by RBI on behalf of the Indian government.

2-     The Indian residents including individual (in his capacity as an individual, or on behalf of minor child, or jointly with any other individual), HUFs, Trusts, Universities and charitable institutions are eligible to avail these bonds.

3-     Gold bonds are denominated in grams of gold and investments can be done in multiples of one gram with a maximum limit of 4kg per person.

4-     The investors will also be compensated at a fixed interest rate of 2.50% per annum payable semi-annually on the nominal value.

5-     The interest on Gold Bonds shall be taxable and are exempted from the capital gains tax on redemption.

6-     Tenors of the Bond are of 8 years with an exit option in 5th 6th and 7th year.

7-     Bonds will be tradable on stock exchanges.

8-    The sovereign gold bonds also aid maintaining the current account deficit as most of the demand for gold in India is met through imports.

Disadvantage
The bonds have a 5 years locked in period and are not eligible for redemption. As the bonds track the gold price, if the gold price during the bind maturity period is lower than the present day, then you will end up in loss.

The point here is investor will lose on the units will remain fixed, only prices may fluctuate.