RBI Sovereign Gold Bonds: A Safe and Attractive Investment Option
Investing in gold has always been a popular choice for Indians. However, purchasing physical gold can be risky and inconvenient. The Reserve Bank of India (RBI) has introduced a safe and attractive investment option for individuals looking to invest in gold: Sovereign Gold Bonds (SGBs).
What is RBI Sovereign Gold Bond Scheme?
- The government has launched a scheme called the Sovereign Gold Bond Scheme. This scheme issues bonds that use gold as the underlying asset.
- It was first issued in November 2015, and the Reserve Bank of India gives out these bonds on behalf of the government.
- These gold bonds are considered a safe investment tool because gold is not often affected by market changes.
- Therefore, these gold bonds are an excellent option for investing in gold without having to physically buy it. When the bond reaches maturity, both the purchase and redemption will be made in cash instead of gold.
- The RBI issues sovereign gold bonds (SGBs) for a fixed period, and they announce it in a press release.
- Interested investors can invest within a one-week window after the announcement. Once an investor purchases the bond, they will receive a holding certificate.
- The government has set a fixed fee for investing in this package, and everyone who invests is entitled to a return.
- The current interest rate set by the government is 2.50% per year, with interest paid every six months. However, this interest rate may change based on government policy.
How does the sovereign gold bond works?
- The RBI issues SGBs in multiple tranches throughout the fiscal year, and these bonds can be purchased from various sources such as banks, brokers, post offices, and online platforms.
- To incentivize investors to buy SGBs online, a discount of INR 50 per gram is offered. It’s important to note that the RBI frequently releases new series of SGBs in the market, so if you missed out on the previous one, there will always be another one to look forward to.
- Investors can acquire SGBs in physical or dematerialized forms. If an investor buys the bonds physically, they can request to have them credited to their Demat accounts. The RBI will then dematerialize the bonds and determine how long they will be kept in their records.
- After allocation, investors also have the option to dematerialize the SGBs. Investors can also buy SGBs through the secondary market, i.e. Stock Market
- When an investor applies for a Sovereign Gold Bond, they will receive an application number immediately. Additionally, all SGB investors receive certificates from the RBI, which will be delivered by their bank. It’s important to note that it typically takes 15-30 days for the certificate to be issued following application approval.
How to Redeem Sovereign Gold Bond?
Sovereign gold bonds have a lock-in period of 8 years. However, after a 5-year lock-in period, the bonds can be terminated or withdrawn prematurely. Additionally, the bonds can be sold on the secondary market at any time after maturity.
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Benefits of Investing in Sovereign Gold Bonds
They offer a safe and convenient alternative to owning physical gold. Here are some of the benefits of investing in RBI Sovereign Gold Bonds:
1. Safety and Security
On behalf of the Government of India, RBI issues the SGBs. This ensures that the bonds are backed by the government and are considered a safe investment option. Additionally, SGBs eliminate the risk of theft or loss associated with physical gold.
2. Attractive Returns
SGBs offer investors an attractive return on investment. They pay an annual interest rate of 2.5% on the initial investment amount. Additionally, the bonds are redeemable at the prevailing market price of gold at the time of redemption.
3. Tax Benefits
Investing in SGBs also offers tax benefits to investors. The interest earned on SGBs is exempt from income tax. Additionally, capital gains arising from the redemption of SGBs are also exempt from tax if the bonds are held until maturity.
SGBs are listed on the stock exchange, which means they can be easily bought and sold by investors. This offers investors liquidity and flexibility in managing their investments.
5. Flexibility in Investment Amount
SGBs offer investors flexibility in terms of the amount they can invest.
Investor can invest in SGB with minimum 1 gram of gold and maximum up to 4 kg for HUFs (Hindu Undivided Families and 20 kg for trusts and similar entities. This makes SGBs accessible to a wide range of investors with varying investment goals and budgets.
6. Easy to Buy and Hold
Buying and holding SGBs is a simple and straightforward process. Investors can buy SGBs through authorized banks, post offices, and stock exchanges. Additionally, SGBs can be held in demat form, which eliminates the need for physical storage and makes them easy to trade and manage.
7. Hedge Against Inflation
Investing in gold is often considered a hedge against inflation. As the price of gold tends to rise in times of inflation, investing in SGBs can help investors protect their purchasing power and maintain the value of their investments.
8. Encourages Financial Inclusion
The government has introduced various measures to encourage financial inclusion through SGBs. For instance, a discount of Rs. 50 per gram is offered to investors who apply online and pay through digital modes. Additionally, SGBs can be purchased by non-resident Indians (NRIs) and are considered a part of their foreign investment limit.
The RBI Sovereign Gold Bond Scheme provides a safe and convenient investment option for individuals looking to invest in gold. These bonds, backed by the government, eliminate the risks associated with physical gold and offer attractive returns with an annual interest rate of 2.5%. Investors also enjoy tax benefits, liquidity, flexibility in investment amounts, and the ease of buying and holding SGBs. Moreover, investing in SGBs acts as a hedge against inflation and promotes financial inclusion. With these benefits, the RBI Sovereign Gold Bond Scheme proves to be an excellent alternative to traditional gold investments in India.