Sovereign Gold Bond - How to Buy Gold Bond?

Sovereign Gold Bond (SGB) Scheme is a form of investment that is offered by Reserve Bank of India on behalf of Government of India. Gold Bonds are denominated in grams and can be purchased as an alternative to physical gold. Hence, Sovereign Gold Bond is a form of dematerialised or paper gold, backed by the Government of India. It is a prudent investment decision to maintain some assets in gold. However, purchasing and maintaining physical gold is cumbersome and could lead to theft or wastage during conversion. Hence, investors who wish to invest in gold can instead purchase Gold Bonds which have all the characteristics of the physical gold apart from the physical form itself.

Gold Bonds vs Physical Gold

Sovereign gold bonds can be easily redeemed to cash. However, while converting physical gold to cash, there may be charges levied by the jeweller or purchaser. Sovereign gold bond is held in paper form and is thus much more secure when compared to physical gold. There is also no risk of theft or damage and costs of storage. Sovereign gold bond does not have the concept of purity. However, physical gold is subject to purity and making charges.

Interest Paid on Gold Bond

One of the biggest advantages of holding gold bond instead of physical gold is the payment of interest. Sovereign bondholders would be paid periodical interest @ 2.50% yearly on the quantity of initial investment. There is no interest paid on physical gold holding.

Tax on Gold Bond

TDS is not applicable for Sovereign Gold Bond. Capital gains tax treatment will be identified as that for physical gold. However, individuals will be exempted from the capital gains tax, if the gold bond is held till redemption. In case the gold bond is sold by an individual before redemption, the indexation benefits will be provided for long term capital gains arising on account of the transfer.

Who can Buy Gold Bond?

Gold Bonds can be purchased by a person resident in India, being an individual or jointly by individuals, or by an individual on behalf of a minor child. A gold bond can also be held by a Trust, Charitable Institution and University. Know-your-customer (KYC) norms are applicable for purchase of Gold Bonds. Hence, KYC documents like Voter ID, Aadhaar card/PAN/Passport will be required.

How to Buy Gold Bond?

Gold bonds can be purchased from banks in India. Any person interested in buying gold bond must make a minimum investment in the gold bond of one gram. The maximum limit of gold bond that can be purchased is 4 KG for individuals, 4 Kg for HUFs and 20 Kg for trusts and similar entities per fiscal (April-March) notified by the Government from time to time. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the Secondary Market

How to Sell Gold Bond?

The tenor of gold bond will be for a period of 8 years with an exit option from 5th year onwards to be exercised on the interest payment dates. The selling price of a gold bond will be fixed in Indian Rupees and the redemption price shall be based on the simple average of the closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. Further, gold bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI. Hence, even before maturity, gold bonds can be sold or transferred by the execution of an Instrument of transfer in accordance with the provisions of the Government Securities Act.

Can I Pledge Gold Bond as Collateral?

Yes, like physical gold, gold bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.