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
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
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.
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.
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.
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.
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.
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.
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 |