Sovereign Gold Bond (SGB) Investment FAQs

Sovereign Gold Bonds are cost-efficient, hassle-free and offer some unique advantages over other forms of gold investments. Amateur investors often have a lot of queries and are always looking for to-the-point guides that cover FAQs around SGBs. 

To begin with, Sovereign Gold Bonds are government securities issued by the Reserve Bank of India. They are available in multiples of one gram and have a maturity period of 8 years. Early redemption is allowed after five years from the date of purchase. 

They are relatively a risk-free investment and offer periodic interest income over and above the capital gains on redemption. However, the maturity tenure of 8 years and the lock-in period of 5 years discourage a lot of investors from opting for SGBs. 

Let’s understand more about SGBs and answer some of the most important questions like, What are sovereign gold bonds? How to buy a sovereign gold bond? How to invest in sovereign gold bonds? Is Investing in SGBs safe?

Important: This blog is meant to educate readers and the information furnished here is not to be construed as investment advice from Cube Wealth. 

What are Benefits Of Buying SGBs Over Physical Gold?

The key advantages of SGBs over physical gold are:

• There is no risk of storage
• SGBs are held in the books of the RBI or in Demat form. This eliminates risks related to loss of scrip (certificate of possession).
• SGBs are free of making charges and purity risks.
• SGBs offer periodical interest, which is credited bi-annually
• If SGBs are redeemed after maturity, the investors need not pay any LTCG (long-term capital gains) tax
• Investors are assured of the ongoing market prices of gold at the redemption of SGBs

Read this blog to know if you should invest in gold or mutual funds

Is Investing In SGBs Safe? What Are The Risks? 

SGBs are a safe investment in the sense that there is no risk of losing any of the gold units purchased. However, there is a chance of capital loss, if the price of gold at the time of selling/redemption is lesser than the price paid at the time of purchase.  

This is where digital gold investments fare better. Digital gold by Safegold on the Cube Wealth app allows investors to redeem their gold investments conveniently at any time either as capital or smelted gold bars. 

Read this blog to know if gold investments are good or bad

Who Can Invest In Sovereign Gold Bond Scheme?

The Sovereign Gold Bond Scheme specifies that Indian residents as defined under the Foreign Exchange Management Act 1999 can invest in SGBs. Individuals, (HUFs) Hindu Undivided Families, trusts, universities, and charitable institutions are eligible to invest. Joint holding is permitted.  

Guardians can apply on the behalf of investors under 18 years of age. Also, investors who held SGBs as Indian residents and subsequently changed to non-Indian residents can continue to hold the bonds until redemption or maturity.

Read this blog to find out 6 best ways to invest in gold in India

How To Invest In Sovereign Gold Bonds?

To purchase SGBs, investors need to fill out an application form and complete the KYC (Know Your Customer) process by providing the PAN card issued by the Income Tax Department.

The Reserve Bank of India issues SGBs in different tranches in a financial year. The application forms are available at specified bank branches, stock exchanges, and designated post offices. Soft copy of the form can be downloaded from the RBI website.

Read this blog to know if you should buy gold in 2021

What Are The Limits On SGB Investment?

Sovereign Gold Bonds are issued in denominations of one gram. The minimum investment is one gram. The limits on maximum investment are as follows:

1. For individuals and HUFs – The maximum limit is 4 kg of gold per financial year. In the case of joint holdings, this limit applies to the first holder only.
   

2. For trusts and similar entities specified by the government – The maximum subscription limit is 20 kg per financial year.

Note: The annual limit applies to bonds subscribed under different tranches during initial issuance as well as secondary market purchases.

What Is The Rate Of Interest On SGBs And How Is It Paid?

SGBs bear interest at a fixed rate of 2.5% per annum. The interest is calculated on the initial investment amount. It is directly credited to the bank account of the investor. The payout period is every six months. The final interest is paid out on maturity along with the principal.

Who Are The Authorized Agencies Selling The SGBs?

The SGBs are issued by the RBI on behalf of the Government of India. RBI notifies the terms and conditions from time to time. The Government Security Act of 2006 permits the issuance of the gold bonds as equities of the Government of India.

Bonds are offered directly or through their representatives through the authorized stock exchanges, Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, and Stock Holding Corporation of India Ltd. (SHCIL).

Can SGB Be Traded?

Only the bonds held in de-mat form with depository institutions can be traded on stock exchanges after a draw is notified by the RBI. Additionally, the Government Securities Act of 2006's provisions permit the sale and transfer of the bonds. Partial transfer of bonds is also possible.

What Are The Tax Implications Of The Capital Gains Earned on SGBs?

If the bonds are held till maturity (8 years), the maturity amount received is exempted from tax. In case of premature redemption or selling of the bond on the secondary market, then tax is calculated as follows:

1. Before 3 years - Short Term Capital Gains (STCG) tax is applicable. The profit earned is added to the annual income and taxed as per the applicable tax bracket.

2. After 3 years  - Long Term Capital Gains (LTCG) tax is applicable at the rate of 20% with added cess and indexation benefits.
   

Read this blog to know about the tax implication of SGBs

Summary

To find out which kind of investment is more suitable for your portfolio, it is suggested to consult a wealth coach and compare SGBs with alternative instruments with similar benefits like Digital Gold. 

To explore Digital Gold by Safegold, download the Cube Wealth App today. 

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