Last Updated on January 6, 2023 by IGNOU Forum
The Sovereign Gold Bond (SGB) Scheme is a government-backed investment program in India that allows investors to purchase gold in the form of a bond. The bonds are issued by the Reserve Bank of India on behalf of the Government of India, and are denominated in units of one gram of gold.
The SGB Scheme was launched in 2015 as an alternative to physical gold investment, with the goal of reducing the demand for physical gold and reducing India’s reliance on gold imports.
The SGB Scheme allows investors to purchase gold bonds online or through designated banks and post offices, and the bonds can be held in physical or demat form. The bonds have a maturity period of 8 years, and the interest rate is fixed at the time of issue. The bonds are eligible for use as collateral for loans, and the capital gains tax on the sale of the bonds is deferred until the maturity of the bonds.
The SGB Scheme is one of several investment options available to investors interested in gold in India, and it may be a suitable option for those who want the benefits of gold investment without the risks and costs associated with physical gold.
What is Gold Bond?
A gold bond is a type of financial instrument that allows investors to purchase gold in the form of a bond, rather than as a physical asset. Gold bonds are issued by governments or other organizations, and are denominated in units of gold. They typically pay a fixed rate of interest. It have a fixed maturity period, after which the bond can be redeemed for the value of the gold it represents.
Gold bonds can be an alternative to physical gold investment, as they offer some of the same benefits without the risks and costs associated with storing and safeguarding physical gold. Gold bonds are also more easily tradable than physical gold, and they may offer tax advantages in some cases. However, gold bonds also carry risks. such as the risk of default by the issuer and the risk of fluctuating gold prices. As with any investment, it is important to carefully consider the risks and potential returns before investing in gold bonds.
Who can apply for Sovereign Gold Bond Scheme
The Sovereign Gold Bond (SGB) Scheme is a government of India initiative. It allows individuals and institutions to invest in gold in a paperless form. It is designed to reduce the demand for physical gold. Thus reduce the use of gold as a hedge against inflation, and reduce the trade deficit.
Individuals who are residents of India and are 18 years of age or older are eligible to apply for the SGB Scheme. This includes individual investors, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. Non-resident Indians (NRIs) and foreign investors are not eligible to apply for the SGB Scheme.
To apply for the SGB Scheme, individuals must have a PAN card and a bank account. They can apply through a number of channels, including banks, designated post offices, and the Stock Holding Corporation of India Limited (SHCIL). The bonds are issued in denominations of one gram of gold or multiples thereof, and the minimum investment is one gram of gold. The bonds have a maturity period of eight years and can be redeemed in cash on the maturity date or earlier.
Benefits of Sovereign Gold Bond Scheme
The Sovereign Gold Bond (SGB) Scheme offers several benefits to investors. Some of the main benefits of the SGB Scheme are:
Convenience: SGBs can be bought and sold easily. They are issued in dematerialized form, which means that they are held electronically and do not require physical storage.
Safety: SGBs are backed by the government of India, which ensures their safety and security. They are also free from the risk of theft or damage.
Returns: SGBs offer a fixed rate of interest, which is currently 2.5% per annum. This means that investors receive a regular stream of income in addition to the appreciation in the value of gold.
Tax benefits: SGBs are exempt from capital gains tax if they are held until maturity. They are also eligible for a tax deduction of up to Rs. 50,000 under Section 80C of the Income Tax Act.
Diversification: SGBs provide an opportunity for investors to diversify their portfolios and reduce the risk of their investments. Gold is considered a safe haven asset and tends to perform well during times of economic uncertainty.
Liquidity: SGBs can be easily sold in the secondary market, which provides investors with the flexibility to sell their bonds when they need cash.
Sovereign Gold Bond Scheme – FAQ
Here are some frequently asked questions (FAQs) about the Sovereign Gold Bond (SGB) Scheme:
How do I apply for SGBs?
Individuals can apply for SGBs through banks, designated post offices, and the Stock Holding Corporation of India Limited (SHCIL). The bonds are issued in denominations of one gram of gold or multiples thereof, and the minimum investment is one gram of gold.
Can NRIs and foreign investors apply for SGBs?
No, only residents of India who are 18 years of age or older are eligible to apply for SGBs. This includes individual investors, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. NRIs and foreign investors are not eligible to apply for SGBs.
What is the maturity period of SGBs?
SGBs have a maturity period of eight years. They can be redeemed in cash on the maturity date or earlier.
Are SGBs tax-free?
SGBs are exempt from capital gains tax if they are held until maturity. They are also eligible for a tax deduction of up to Rs. 50,000 under Section 80C of the Income Tax Act.
Can I sell my SGBs in the secondary market?
Yes, SGBs can be sold in the secondary market through stock exchanges.
Is there a limit on the number of SGBs that I can purchase?
There is no limit on the number of SGBs that an individual can purchase. However, the maximum amount of SGBs that can be issued in a financial year is 4,500 metric tons.
