What is the Sovereign Gold Bond Scheme by RBI, and How to Invest in It?

SGBs, or sovereign gold bond schemes, are government securities denominated in gold. They act as a substitute for genuine gold. Investors must pay the issuance price in cash, and the bonds must be redeemed in money when they mature. The RBI issues the Bond on behalf of the government.

Benefits of the scheme

The quantity of gold paid for by the investor is protected since they receive the current market price when redeeming or prematurely redeeming. The SGB is a better option than physically storing gold. Storage risks and expenses are decreased. Upon maturity, investors are guaranteed the market value of gold and monthly interest. SGB is devoid of obstacles in the case of gold in jewellery, such as wastage and making charges.

Eligibility

Persons residing in India may invest in SGB. Individuals, trusts, HUFs, universities, and charity institutions are all eligible. Individual investors who switch to NRI status may keep their SGB until they are redeemed or mature.

Tenure of the scheme

The Bond has an 8-year term with the option for the investor to leave in the fifth, sixth, or seventh year.

Joint Holding

RBI allows Joint holding.

Minimum and Maximum limit for investment

Individuals have a minimum of one gram and a maximum of four kilograms. The minimum is the same for all entities; however, the maximum for Hindu Undivided Families (HUF) is four kilograms, and for trusts and similar entities, twenty kilograms. In the case of joint ownership, the limit only applies to the first applicant. The annual ceiling will encompass bonds subscribed for in various tranches during the government's initial issuance and those purchased in the secondary market. Banks and other financial institutions' collateral will be excluded from the investment limit.

Redemption of Amount

At maturity, the Gold Bonds will be redeemed in Indian Rupees, with the redemption price depending on the average of the closing price of 999 pure gold over the previous three business days from the day of repayment, as announced by the India Bullion and Jewellers Association Limited. The interest and redemption revenues will be credited to the bank account provided by the customer. One month before maturity, the investor will be alerted of the Bond's impending maturity. If any information, such as account numbers or email addresses, changes, the investor must contact the bank/SHCIL/PO promptly.

Premature encashment

Despite the Bond's 8-year term, early withdrawal is available on coupon payment days following the fifth year from the date of issue. It can also be transferred to another qualifying investor. Investors should contact the relevant bank/SHCIL office/Post Office/agent thirty days before the coupon payment date if they wish to redeem their bonds early. Early redemption requests can only be considered by the RBI if the investor visits the relevant bank or post office at least one day before the coupon payment date. The cash will be deposited into the customer's bank account, which was specified when they applied for the Bond.

Risks

There is a danger of capital loss if the market price of gold declines. The investor, however, does not lose the gold units he has paid for.

Price of the Bonds

The principal amount of Gold Bonds will be in Indian Rupees. They will be determined by the simple average of the closing price of 999 purity gold announced by the India Bullion and Jewelers Association Limited for the last three business days of the week preceding the subscription period.

Tax implications

The interest on the bonds is subject to tax. The capital gains tax on SGB redemption to a person has been waived. Long-term capital gains deriving from a bond transfer will be eligible for indexation benefits. TDS does not apply to the Bond. However, it is the bondholder's responsibility to follow tax regulations.

How to apply

Customers can apply online through the websites of the scheduled commercial banks listed below. For investors who apply online and pay digitally, the price of the Gold Bonds would be Rs.50 per gram less than the nominal value. The issuing banks/SHCIL offices/designated Post Offices/agents will supply the application form. It is also available for download at the RBI's website. Banks may also offer online application services.

To conclude, the Sovereign Gold bond scheme is a safe and low-risk investment scheme that aims to give the investor high returns. If an investor is looking to gain some financial stability and invest for the future, this is an option one must consider.

For more details, you can visit https://www.rbi.org.in/Scripts/FAQView.aspx?Id=109