Gold, in Indian history, is more than an investment; it is a culturally important metal which has found a place in Indian hearts and homes alike. It is true that a vast majority of the Indian population survives on inadequate resources, but despite this, they find ways to buy gold and make it an integral part of their lives, irrespective of gold rates. Indians buy physical gold mostly for Marriages, Gifts, Family, Donations, and Investment. In India Gold is consider as a super-metal which can provide a solution to multiple problems.  The Government of India introduced the Sovereign Gold Bond (SGB) Scheme in November 2015 to offer investors an alternative to own gold. SGBs are government securities and are considered safe. Their value is denominated in multiples of gold grams

Key Features of Sovereign Gold Bond (SGB) Scheme

  • The bond bears an interest at the rate of 2.50% (fixed rate) per annum on the nominal value.
  • Interest will be credited semi-annually to the investor’s account and the last interest will be payable on maturity along with the principal.
  • Investors will earn returns linked to gold prices.
  • Bond carry sovereign guarantee both on redemption amount and on the interest.
  • Minimum investment: 1 gram. Maximum investment: 4 Kgs for individual, 4 Kgs for HUF and 20 Kgs for trust and similar entities per fiscal (April-March).
  • Available in DEMAT and paper form
  • Tradable on NSE and BSE

Advantages of Sovereign Gold Bond (SGB) Scheme

  • Safest: Zero risk of handling physical gold
  • Earn Interest: 2.50% assured interest per annum on the issue price
  • Tax Benefits: No TDS applicable on interest
    Indexation benefit if bond is transferred before maturity
    Capital gain tax-exempt on redemption
  • Assurance of Purity: Gold bond prices are linked to price of gold of 999 purity (24 carat) published by IBJA
  • Sovereign Guarantee: Both on redemption amount and on the interest
  • Easy Exit Option: The tenor of the bond is for 8 years with an option to redeem from 5th year onwards on the date on which interest is payable
  • Traded on Exchange: All earlier issuance of SGB are available for trading on NSE and BSE
  • Ease of Borrowing Loan: Can be used as collateral for loans

Comparison of Physical gold, Gold ETF and Sovereign Gold Bond

Physical GoldGold ETFSovereign Gold Bond
ReturnsLower than actual return on goldLower than actual return on goldHigher than actual return on gold
SafetyRisk of handling physical goldHighHigh
Purity of GoldPurity of Gold always remains a questionHigh as it is in Electronic FormHigh as it is in Electronic Form
Capital GainLong term capital gain applicable after 3 yearsLong term capital gain applicable after 3 yearsLong term capital gain applicable after 3 years. ( No Capital gain tax if held till maturity )
Collateral against LoanYesNoYes
Tradability / Exit RouteConditionalTradable on ExchangeTradable on Exchange. Redemption- 5th year onwards with GoId
Storage CostHighVery LowVery Low

Sovereign Gold Bonds are new-age investment vehicles for those interested in the gold sector. The bonds are better than holding physical gold. Investors who are looking for investment in gold then SGB is best option for them.

Sona Bhi, Samajdhari bhi !!

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