June 11, 2020

(DISCLAIMER: This blog is for information purposes only. Investments in the securities market are subject to market risks. Readers are requested to read all related documents carefully before investing.)

Gold has been one investment avenue that has charmed its investors with its golden returns. If not, during a short period, but surely have on the long term. The government has come out with a new scheme of investing in gold through the Sovereign Gold Bond Scheme. Under this scheme, the Gold Bonds are issued by RBI on behalf of the Government of India.

Who is eligible to invest in SGBs?

Any person who is a resident of India as per the FEMA Act, 1999 is eligible to invest in SGB. Individuals, HUFs, trusts, universities are some of the examples of person.

Risks associated with an investment in SGBs

Gold Bonds are issued in grams as its units. If the market price of the gold declines, there will be a capital loss to its investors. However, the units for which the investor has paid remains unchanged.

Tenure

These Bonds are issued for a period of 8 years and gives exit options from the 5^th year. That is, early redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates.

Minimum and maximum investment?

The minimum investment in bond shall be of 1 gram and can be stretched up to a maximum limit of 4 kg for individual, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).   

How the price of Gold Bonds are determined?

The nominal value of Gold Bonds shall be on the basis of a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited, for the last three business days of the week preceding the subscription period.

What is the return on investment?

SGBs comes with an interest rate of 2.50% per annum. This interest rate is fixed and shall be paid semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal. The interest shall be paid on the initial amount of your investment (i.e. nominal value). Interest shall be taxable as per the Indian Income Tax Act, 1961.

What can one expect on redemption?

On maturity, the market price shall be the redemption price of the SGBs which shall be based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the date of repayment, published by India Bullion and Jewellers Association Limited. Capital gain tax at the time of redemption of SGBs is exempted.

Who are authorised agencies to sell?

Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents.

How can one apply for it?

You can apply online or offline. However, the advantage of applying online is the issue price of the Gold Bond will be Rs. 50 per gram less than the offline nominal value.

Can SGBs be used as collateral for loans?

Yes! SGBs can be used as collateral for loans. The loan to value ratio will be as applicable to ordinary gold loan prescribed by RBI from time to time. However, the loan sanctioning authority reserves the right to grant the loan.

Forthcoming issues in FY 2020-2021

Sr.No.	Tranche	Date of Subscription	Date of Issuance
1	2020-21 Series IV	July 06-10, 2020	14-Jul-20
2	2020-21 Series V	Aug 03-07, 2020	11-Aug-20
3	2020-21 Series VI	Aug 31- Sept 04, 2020	8-Sep-20

Conclusion: Gold is an ideal avenue where one can park investment. What makes SGBs lucrative from buying physical gold is it offers 2.50% per annum interest which is an extra return. On the other side, one shall be ready to remain invested for 8 years period.