Sovereign Gold Bond Scheme 2020-2021

Sovereign Gold Bond Scheme 2020-2021

  • 17 Jun 2021
  • Posted By arkca

Sovereign gold bonds are RBI mandated certificates issued against grams of gold, allowing individuals to invest in gold without the strain of safekeeping their physical asset. Sovereign gold bonds act as a secure investment tool among individuals, as gold prices are less susceptible to market fluctuations.

 

Why should I buy SGB rather than physical gold?

A sovereign gold bond scheme is one of the most profitable investment avenues, owing to its widespread benefits and low restrictions. Individuals having a low aptitude for risk but want to enjoy substantial returns on their corpus can choose to invest their funds in this scheme, as they are one of the highest returns bearing government-mandated scheme.

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption / premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Compared to physical gold investments and gold ETFs, a sovereign gold bond can arguably be more profitable, as it is backed by the highest financial authority. However, purchasing such sovereign bonds should be considered only after analysing the financial goals and time frame of investment, as considerable funds have to be kept locked in to realise subsequent returns in the future. Also, interested individuals need to follow the RBI’s website periodically to for successful subscription to such sovereign gold bonds.

Features of Sovereign Gold Bonds

  • Updated price – Prices of a sovereign gold bond 2020 is calculated through a simple average of the closing prices of 999 purity gold for the last 3 days set by the Indian Bullion and Jewellers Association Limited (IBJA).
  • Periodic interest pay-outs – A coupon rate of 2.5% per annum is associated with the sovereign gold bond scheme, which is disbursed half-yearly to investors.
  • Fixed tenor – Gold bonds are issued for a period of 8 years, with premature withdrawal permissible from the 5th year. Also, individuals can sell their respective securities in the secondary market at the market rate of gold.
  • Premature withdrawal – Individuals willing to cash-in their investment can do so after a mandatory holding period of 5 years. This payout benefit can be exercised for the 5th, 6th, and 7th year of bond tenor, and will be processed on the interest disbursement days.
  • Resale – The Sovereign gold bond scheme 2020 can be traded in the secondary market after 14 days from an initial subscription date, subject to a notice published by the RBI. Prices at which these bonds are transacted depend on the prevailing gold prices on the stipulated date, as well as its corresponding demand and supply in the stock market. Consequently, for transactions in the stock market, a holding certificate has to be digitised and stored in a Demat account of an investor.
  • Quantity of subscription – Subscriptions are to be made in Sovereign bonds as grams of gold. A minimum investment equivalent to the price of 1 gram of gold has to be made, while the maximum limit is equal to the value of 4kg of gold for individuals and Hindu Undivided Families (HUF). For corporations and trusts, the upper limit is set at 20kg.

Upon maturity of a sovereign bond, payouts are made corresponding to the prevailing price of gold, calculated by considering a simple average of the price of gold for the last 3 days, and is published by the IBJA. As the price of gold tends to appreciate considerably over time, individuals can enjoy substantial wealth accumulation with minimal risk exposure.

 

COMPARISON OF PHYSICAL GOLD, GOLD ETF AND SOVEREIGN GOLD BONDS

 

 Points

Physical Gold

Gold ETF

Sovereign Gold Bonds

 Returns Lower than actual return
on gold
 Lower than actual return
on gold
 Higher than actual return
on gold
 Safety Risk on handling physical
gold
High High
 Purity of Gold Purity of Gold always remains a question High as it is in Electronic
Form
High as it is in Electronic
Form
 Wealth Tax  Wealth tax applicable at
1% on the total valuation
of the assets every year
Not Applicable Not Applicable
 Capital Gain Long term capital gain tax
applicable after 3 years
 Long term capital gain tax
applicable after 3 years
Long term capital gain tax
applicable after 3 years (No Capital Gain Tax if held till maturity)
 Collateral against
Loan
 Yes No Yes
 Tradability /
Exit Route
 Conditional Tradeable on Exchange Tradeable on Exchange

Redemption 5th year onwards with Government of India

 Storage Cost High Very Low Very Low

 

Benefits of Sovereign Gold Bond Investment:-

·         SAFEST: Zero risk of handling physical gold

·         Earn Interest: 2.75% assured interest per annum on the initial investment

·         Tax Benefits: No TDS applicable on interest Indexation benefit if bond is transferred before maturity. Capital Gain Tax exempt on Redemption

·         Assurance of Purity: RBI will announce the price before the issue date which will be fixed on the previous week’s simple average of closing price of gold of 999 purity published by IBJA.

 

·         Sovereign Guarantee: Both on redemption amount and on the interest

·         Easy Exit Option: The tenure of the bond is for 8 years with an option to redeem from 5th Year Onwards on the date on which interest is payable.

·         Ease of Borrowing Loan: SGB can be used as collateral for loans

·         Traded on Exchange: Tranche 1 trading commenced from 13th June 2016 onwards.

 

Advantages of Investing in Sovereign Gold Bonds

  • Low risk

A sovereign gold bond is issued in accordance with the Government Security Act of 2006 by the Reserve Bank of India, on behalf of the central government. Such government backing makes sovereign gold bonds one of the safest forms of investments available in India, as chances of defaults on repayment is zero. Any risk associated with such investments can be attributed to market fluctuations, causing volatility in gold prices.

 

  • Convenience

Sovereign gold bonds were launched under the gold monetisation scheme by the central government in November 2015. The primary aim of such treasury bonds was to reduce the hassles involved with gold investments, as bullions and other physical forms of investments required proper and secure storage.

 

  • Security

Investors purchasing a gold bond are issued a holding certificate as a declaration of their investment, thereby acting as proof of the same. Individuals can also choose to digitise such holding certificates to utilise them in their Demat accounts, thus enhancing the security of their investment even further.

 

  • Capital appreciation

Sovereign gold bond returns are substantial as the price of this precious metal tends to rise in the long term. During times of stock market turmoil, investors tend to shift towards gold, as it has the potential to hold its value even during under performance of major functional companies.

Also, as gold is one of the highly demanded precious metals owing to its widespread usage, the market demand tends to be relatively high irrespective of the market variations and global economic scenarios. Hence, unsystematic risks causing erratic movements in the intrinsic value of gold are minimal, allowing investment corpus to grow manifold over time.

 

  • Hedge against inflation

As stated above, gold prices demonstrate extensive capital appreciation. Rates of growth of such assets are considerably higher than the prevailing inflation rates a country, vital as an investment avenue. Hence, individuals can enjoy growth in the real value of their investment portfolio, allowing them to accumulate substantial wealth over time.

 

  • Long term investment

Sovereign gold bond scheme 2020 comes in with a holding period of 8 years. This is ideal for individuals looking for a long-term investment scheme generating extensive capital gains, along with the security of corpus.

 

  • Loan facility

Sovereign gold bonds hare an acceptable form of collateral to avail loans. Up to 75% of the market value of such bonds can be availed as a loan from any scheduled financial institution, as stipulated by the RBI’s LTV regulations.




Soverign Gold Bond Scheme 21-22 Important Dates: –

Tranche Date of Subscription Date of Issuance
2021-22 Series I May 17-21, 2021 May 25, 2021
2021-22 Series II May 24-28, 2021 June 1, 2021
2021-22 Series III May 31-June 4, 2021 June 8, 2021
2021-22 Series IV June 12-16, 2021 June 20, 2021
2021-22 Series V August 9-13, 2021 August 17, 2021
2021-22 Series VI August 30-September 3, 2021 September 7, 2021

 

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