SOVEREIGN GOLD BOND
Gold investments hold the highest entity in the list of assets. RBI’s sovereign gold bonds unlike physical gold offer safety measures and high interest to the issuer. Basically, SGBs are the public securities issued in the grams of gold.
Benefits of Sovereign gold bonds (SGBs):
1. 2.50% PA interest- paid twice in a year- in the six month duration.
2. Assured market value of gold at the time of maturity.
3. Gold bond prices are linked to price of gold of 999 purity (24 carat) published by IBJA.
4. The tenor of the bond is for 8 years with an option to early exit from 5th year onwards on the date on which interest is payable.
5. Can be used as collateral for loans.
6. Zero TDS applicable on interest.
7. Capital gain tax exempt on redemption.
8. Indexation benefit if bond is transferred before maturity.
9. For the investment in gold bonds, a holding certificate is issued.
10. Issuer at its own convenience can opt for online investment.
FAQs- What, Why, and How’s of Sovereign gold bonds (SGBs).
Q.What are the benefits of buying SGB instead of physical gold?
SGB is a considerable alternative to the physical holding of gold. Zero percent involvement of risk and reposition costs. During maturity, an investor will have the gold with the assured market value and timely interest. No making charges and of 999 purity (24 carat) published by IBJA. This is otherwise the case in the physical gold holdings like jewellery. Because the bonds are safe in the RBI books/ Demat form, SGB exempts the risk such as- loss of scrip.
Q.Who can invest in SGBs?
Indian Citizens residing in India- defined under the Foreign exchange Management Act, 1999 can invest in Sovereign gold bond. Following are considered as eligible investors to finance in SGB:
1. Individuals are considered Indian citizens as per the FEM Act, 1999.
2. HUFs
3. Education institutions- Universities
4. Charitable organizations and trusts.
Q.Can the investor hold SGBs jointly? Are minors allowed to invest in Sovereign Gold Bond?
Joint holding is allowed in the SGB and for the minor investor’s application. The minor investor is allowed if the application is made by his/ her guardian.
Q.Where to find an application form for SGB?
You can download the SGB application form either from RBI’s website or it is provided by the issuing banks/ designated post offices/ financial agents. If asked, banks may provide an online application to the investor. It is important for the applicant to have the PAN NUMBER issued by the Income Tax Department.
Q.What is the SGB holding limit for investment? Individual and joint holding?
The gold bonds are issued as one-gram gold, multiplying thereafter as per the investor's request. The minimum SGB investment subscription is one gram. The maximum limit is 4Kg for individuals, Hindu Undivided Family- HUF, and 20kg limit for trusts and similar charity institutes declared by the Indian government per the fiscal year- April to March. For the joint SGB holding- the limit is subscribed to the first applicant.
Q.From the single-family, can each member be allowed to hold 4kg in their own name?
If all the SGB holding criteria/ eligibility are met, each family member can hold/ buy bonds in their own name.
Q.Are trust/investors allowed to buy 20kg/4kg worth of SGB every year?
As the investment ceiling is fixed based on the fiscal year- April to March, an investor/ trust can purchase 20kg/4kg worth gold every year.
Q.How much rate of Interest is charged and paid to the SGB investor?
The gold bond carries a 2.50% fixed rate per year on the actual investment price of SGB. Interest is calculated and credited on the investor’s bank account semi-annual basis. The last interest will be paid to the investor on the maturity of the SGB along with the principal amount.
Q.When is the holding certificate issued to the investor?
The investor is issued a holding certificate on the SGB issuance date. This certificate can be collected from the issuing banks/ allotted stock exchanges/ agents/ post office. One can also download the certificate from RBI via email. This can be only possible if right email address is provided in the application form.
Q.What is the price at which bonds are sold?
The currency at which the price of the bond is fixed and sold is the Indian rupee. The bond's price is fixed and sold on the basis of a simple average of gold’s 999 purity closing price which is announced by the Indian Bullion and Jewellers Association Ltd. for the last 3 business days of the week- before the subscription period.
Q.Does RBI publish gold prices every day?
Two days before the issue opens, RBI will publish the price of the gold for the specific tranche on their website.
Q.How to receive the SGB redemption?
The gold bonds will be redeemed in Indian Rupee currency during maturity. The redemption price will be based on a simple average of gold’s 999 purity closing price which will be announced by the Indian Bullion and Jewellers Association Ltd. for the last 3 business days of the week- before the subscription period.
Q.What is the redemption procedure?
1. The investor will be notified a month before the maturity period.
2. On the day of the SGB maturity, the matured amount will be credited to the bank account based on the details available in the records.
3. In case of any change in the investor’s detail, e.g. change in the investor’s email ID, account number; it has to be notified to the bank/ SHCIL/PO immediately.
Q.How to redeem the premature bond? In case of the early exit from the SGB investment, what is the procedure to follow?
The duration of the SGB is 8 years. Early exit/ redemption of the gold bond is allowed from the 5th year onwards from the issue date mentioned on the coupon payment dates. The gold bond can be traded on the exchanges if the bonds are held in the Demat form. Also, it can be transferred to another eligible investor.
In case of the first exit from the SGB investment, the investor can approach the concerned bank/ financial agent/ PO thirty days before the payment date. Last-minute redemption requests can only be accepted only when the investor approaches the concerned agent/ PO/ bank at least a day before the coupon payment date. The amount will be credited to the investor’s account provided during the time of bond application.
Q.In case of the SGB investor’s death, what is the procedure to be followed?
The investor’s nominee/ nominees to the SGB can approach the issuing office to claim. In the absence of a nominee, the claim of the executor/ administrator of the deceased investor/ claim of the holder of succession certificate which is issued under Part X of the Indian Succession Act can be submitted to the receiving offices or the depository. The above provisions are also applicable in the case of a deceased minor investor. The holding of the bond during such an event will be passed on to the person fulfilling the criteria mentioned in Government Securities Act, 2006 and not compulsorily to the natural/ first guardian.
