Sovereign Gold Bond Schemes

Investments for Wealth Generation

What is Sovereign Gold Bond Schemes?

Gold is the staple status commodity of India. The demand for gold has risen over the past few decades but the value have seen unanticipated fluctuations resulting in a deficit in the country’s current account.

In order to encourage the citizens to be more invested in gold through bonds rather than the physical gold itself. This will provide a level of security and avoids additional costs of purchasing the gold directly.

Individuals who look to invest a large sum for 5-8 years in gold

Investors who want to buy physical gold

Highlights

  • RiskRisk is linked to the value of gold in the market.
  • ReturnsA fixed rate of 2.5% is payable twice every year.
  • TaxationThe capital gains are exempted from tax on redemption
  • Lock-in Limitations5 year lock-in limit
  • Withdrawals:The bonds can be redeemed or transferred after the lock-in period
  • Capital ProtectionThere is no protection for the capital as it is linked to the gold prices in the market
  • Inflation ProtectionThere is no cover for inflation

Investment Goal

The aim of this scheme is to encourage investors to buy gold in paper form and lower the demand for physical gold

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Overview

FeatureDescription
Eligibility

  • A resident of India, including

    • Individuals

    • HUF

    • Companies or associations



Entry AgeNo age limit prescribed
Investment

  • Minimum: I gram of gold

  • Maximum: 4 kilograms of gold p.a.

InterestFixed: 2.5% paid twice a year
Tenure8 years
Exit OptionPremature closure (before 5 years) is not permitted

Capital & Inflation Protection

There is no capital protection as the bonds are linked to the price of gold in the market.

If gold prices along with the interest beat the inflation there will be positive returns, else there is no inflation protection for these bonds.

Guarantees

The gold for which the investor buys the bonds is secured. The amount of interest that is paid twice a year is assured and fixed for the whole tenure of the scheme.

Liquidity

There is a lock-in of 5 years, after which the bonds can either be transferred or redeemed.

Tax Implications

The capital gains that an investor earns from the bonds are exempted from tax on its redemption. On transfer, the indexation benefit of capital gains is provided to the person.

Account Setup Information

How to buy?

The bonds can be bought in paper or demat form through banks, post offices or Stock Holding Corporation of India with the same KYC of buying physical gold.

Key Takeaways

  • The SGBs allow the investment in gold without the purchase of gold in physical form.
  • On redemption of bonds the investor receives the value equal to the quantity of gold invested .

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