Sovereign Gold Bonds - Things to Know Before Investing in Sovereign Gold Bonds

Gold price is rising right now, and investors are looking to use this opportunity to invest in gold. And right now, with the government’s Sovereign Gold Bond Schemes, investing in this widely-loved yellow metal is easier and more convenient.

Right now, the Sovereign Gold Bond Scheme of 2020-2021 is open for investor subscription. If you do wish to take the opportunity, you need to do this within 5 days from today. The RBI is issuing these bonds on behalf of the Indian Government. Earlier this year in April 2020, the RBI announced that the government shall be giving these bonds in 6 tranches, starting from April 2020 to September 2020.

The RBI has placed the price of SGB at a rate of Rs. 4852/gram.

On its part, the government is giving away a discount of Rs. 50 per gram, less than the normal nominal price for those investors who are applying online. Thus, if you apply online, you get this discount. You need to pay digitally against this particular publication. The Issue price for Sovereign Gold Bonds shall be Rs. 4802/gram. When investing in SGBs through banks, you can make investments through their respective netbanking and mobile banking facilities.

Here are a few things which you need to know before investing in Sovereign Gold Bonds:

1. It is mandatory to provide your PAN number, as per RBI guidelines
2. You have to invest in a minimum of 1 gram gold, while the maximum limit is 4 kg for individuals. For trusts and similar bodies, the upper limit is 20kgs of gold during each fiscal year. The annual ceiling is inclusive of bonds subscribed under various tranches during the initial Government Issue as well as those bought from the Secondary Market.
3. The total tenor of the SGB shall be 8 years. There is an exit option from between 5th and 6th of the 7th year. However, it should be remembered that bonds shall be ready for stock exchanges within 2 weeks of RBI’s issuance date.
4. In case of joint holders, the limit of investment shall be 4 kg of gold, and this shall be applicable to the first applicant only.
5. Before a new issue, RBI will say what the issue price of the bond is. This shall be decided on the basis of the average closing price of gold of 999 purity as published by the RBI for the last three days of the week before the subscription period.
6. These gold bonds shall be issued as Government of India stocks. All investors shall get a holding Certificate. These bonds can be converted into their Demat form.
7. Most banks like ICICI and SBI will accept subscriptions. Investors shall get compensation in the form of a fixed 2.5% per year, payable twice a year on the nominal value.
8. Gold bonds can be used as loan collaterals. The loan to value ratio shall be set on par to the ordinary gold loan as mandated by the RBI.
9. On redemption of the Sovereign Gold Bonds, the capital gains tax for individuals is exempted. Indexation benefits shall be given in case of long-term capital gains by an individual on bonds transfer.