All You Need To Know About Sovereign Gold Bond Scheme (SGB)

Thinking of diversifying your portfolio of investments by purchasing gold? Keep reading!

In the previous 5 years, gold has seen a 37% average CAGR. But, buying gold is rarely a single transaction investment. Subject to further proceedings such as paying additional making cost, design cost, purity check, re-polishing costs, removing risks associated with safety and storage of the metal, etc. buying gold can sometimes be deemed as a hassle.

What is the Sovereign Gold Bond Scheme (SGB)?

To escape these supplementary charges, the government has opened up an opportunity for consumers to own gold in an e-format via the Sovereign Gold Bonds Scheme. Thus, removing the extra layer of expenses and risks linked with buying the metal in physical form.

In early April 2020, the GoI announced 6 subscription intervals for the 2020/21 series which is now open for its last 2 purchase slots for fixed dates i.e. 3^rd – 7^th Aug and 31^st – 4^th Sept.

How to Buy Sovereign Gold Bond Scheme?

The gold bonds are available for purchase/sale both online through a DEMAT account and via banks, specified post offices, Stock Holding Corporations, and verified Stock exchanges (NSE and BSE).

Who Can buy Sovereign Gold Bond Scheme (SGB)?

They can be procured by residents as individuals, families (e.g. HUFs), charities, and educational institutions. The minimum investment is 1gm, capped at 4kgs for residents, and 20kgs for Charities and Universities. The current price of SGB is ₹ 5,334, however, if purchased online ₹50 concession is granted on each gram, making the current online price ₹ 5,284/gm. This payment can be made via cheques, bank transfer, Demand Draft. Cash payments are accepted up to ₹20,000.

The undertaking to buy SGB is exempt from GST charges which are applicable to most tangible purchases. On allotment, the buyer will get proof as an SGB investment certificate. If details for the Demat a/c are shared during purchase, it will automatically be listed as a tradable asset within 14 days from the subscription date. The bonds are also eligible to be used as collateral when securing loans from financial institutions.

Maturity

Maturity for SGB is at 8 years, with a choice withdraw premature post 5 years or extend holding duration by 3 years (11 years). The owner also has the freedom to sell in full or partly in multiples of 1 gm. Via the Demat a/c, SGB can be traded at anytime prior to maturity. At the termination of the maturity period – (8years)/(extended at 11years), RBI will buy back the SGB from the investor for the average price prevailing at the time. The investor will receive money back for all SGB units that he/she holds, however, remains exposed to the risk of capital loss, in case there is a drop in the market price of gold.

The buyer will receive an assured annual fixed interest on the nominal amount at 2.5% credited half-yearly directly into the linked bank a/c. Although free of TDS charges this interest will be taxable. When sold back to the government post 5, 8, or 11 years, the seller will be exempt from LTCG tax. In case you miss to purchase within the government described purchase window, you can still purchase SGB via the share market using your Demat a/c.