The Indian government introduced sovereign gold bonds in 2015 as part of the Gold Monetization Plan. Gold bonds will be issued monthly from October 2021 to March 2022. The Indian Reserve Bank, in discussion with the Indian government, offers the issues in tranches under this scheme.
Sovereign Gold Connections will be valued in increments, with the least unit of 1 gramme. The gold bonds will pay 2.50% interest per year, payments made semi-annually on the net value. The bond will have an 8-year term with an available exit option on interest payment dates in the fifth, sixth, and seventh years. The maximum amount of gold an individual can subscribe to is 4 kg, 4 kg for a Household, and 20 kg for trust funds and other similar organisations. If the gold bonds are found, the investment limit will be 4kg, which will apply only to the first applicant.
Under the Federal Securities Act of 2006, the gold securities will be released as stocks. In addition, the investors will be given a Carrying Certificate.
Gold is considered auspicious in India, and its demand is not limited to its market value. The precious metal is purchased as an investment on auspicious occasions and is also advantageous due to its lower market risk. Although most Indians purchase precious metals, the yellow metal can also be purchased through Sovereign Gold Bonds issued by the Indian Government and the Reserve Bank.
Table of Contents
- What are Sovereign Gold Bonds?
- Who Can Invest in Sovereign Gold Bond Schemes?
- Why should you invest in Gold Bonds?
- How to invest in Sovereign Gold Bonds? span>
- Eligibility for Sovereign Gold Bond Scheme
- Features and Benefits of Sovereign Gold Bond Scheme
- Advantages of Sovereign Gold Bonds
- Sovereign Gold Bonds vs Gold ETFs vs Physical Gold
- Sovereign Gold Bond Scheme Interest rate
- The risk associated with Sovereign Gold Bonds
What are Sovereign Gold Bonds?
Gold Bonds are Debt Funds that the Indian Government initiated in 2015 as an option to buy physical gold. Government securities denominated in grams of gold are known as sovereign gold bonds. Investors must pay the approved price in cash, and the bonds must be repaid in cash at maturity.
Sovereign gold securities are a safe investment because they are less vulnerable to market consequences and fluctuations. Because the Indian government issued these bonds, a time frame is determined and set in advance. During this time, gold bonds are sold in tranches in the title of the investors.
Every two or three months, the government issues gold bonds through a press release, with a one-week window for investors to adhere to these schemes. These Sovereign Gold Securities have an 8-year maturity period, but investors can opt out after 5 years.
Who Can Invest in Sovereign Gold Bond Schemes?
Because of their various benefits and fewer restrictions, sovereign gold bonds represent one of the most lucrative investment schemes on the market. Sovereign Gold Bond Schemes are suitable for investors with a low-risk appetite who want a high return on their investment. The bonds are among the widely grown schemes dictated by the government of India.
Aside from that, people who want to diversify their asset base can choose these bonds to compensate for investments subject to high price risk. If the stock market falls, the gold price will rise, helping to recompense for the risk level in the investment portfolio.
Why should you invest in Gold Bonds?
Money invested in gold bonds has several advantages. Individual people, Hindu Undivided Family members, Trusts, Universities, and Charitable Institutions are the only people who can buy gold bonds in India.
Some benefits of investing in gold bonds include:
- These bonds can also be utilised as loan collateral.
- The bonds can be purchased with cash with a maximum of Rs.20,000 or by demand draft, cheque, or e-banking.
- These bonds are qualified for conversion to DEMAT.
- Since they decided to issue in the form of Government of India stock, gold bonds are a type of security.
- The interest on gold bonds is subject to taxation under the Income Tax Act of 1961.
- Gold bonds completely eradicate the risks and costs associated with storage.
- There are no creating costs or purity issues.
How to invest in Sovereign Gold Bonds?
After discussing with the government, the Indian Reserve Bank makes gold bond issues available for subscription in installments.
The subscription portion for the 2021-2022 sequence is as follows:
2021-22 Series VII
25 October – 29 October 2021
2021-22 Series VIII
29 November – 3 December 2021
2021-22 Series IX
10 January – 14 January 2022
2021-22 Series X
28 February – 4 March 2022
To invest in gold securities, fill out an application form supplied by issuing banks or designated post offices. The application form can also be downloaded from the Banking System of India’s website. Many banks, including the Indian State Bank and Kotak Mahindra Bank, allow you to apply for bonds online.
Every applicant is required to provide their PAN number, which the Department of Income Tax issues. One cannot apply to invest in gold bonds without a PAN.
Nationalised banks, Timetabled Private Financial institutions, Scheduled International Banks, Marked Post Offices, and the Stock Holding India Corporation sell gold bonds through their offices or branches.
An eligibility set of criteria must be managed to meet to be assigned gold bonds. Applying for the bond does not guarantee you will be granted the bond. Gold bonds can be purchased online through the internet sites of the listed banks. For those who apply online, the cost of the asset of the gold securities will be Rs.50 per gram, less than the asset value.
Eligibility for Sovereign Gold Bond Scheme
- Individuals who want to participate in the Sovereign Gold Securities Plan must adhere to the simple eligibility rules.
- Indian residents – The Foreign Exchange Management Act of 1999 establishes the eligibility criteria for this scheme, which is only available to Indian residents.
- Individuals/groups – Individual people, associations, trusts, HUFs, and other entities that are Indian residents are all qualified to invest in this scheme. The scheme allows you to invest in securities with other members elected.
- Minors – This bond can be acquired on behalf of minors by guardians or parents.
Features and Benefits of Sovereign Gold Bond Scheme
Because of their numerous benefits, sovereign gold securities have been chosen as an investment vehicle. Some of these characteristics are as follows:
- Gold denomination – These bonds will be released in various weight denominations, beginning with 1 gramme and increasing in size, allowing for greater flexibility in purchasing gold that meets an individual’s needs.
- Format Individuals can hold these bonds in either article or Demat structure, whichever is more convenient for them.
- Flexibility – Investment opportunities in this plan are flexible, with the option to select the amount invested.
- Investment opportunities in this plan are capable of earning interest every year.
- Rate of Interest The Indian Reserve Bank provides an annual interest rate of 2.50% on gold bonds, which is paid extra a year on the asset value. The rates of return will be directly proportional to the current market gold price.
- Safety Because they are government securities, sovereign gold securities are known to be safe. They do not carry the risk that physical gold does, such as the possibility of stealing.
- Purity Because the government guarantees it, investors can be assured of the purity of the gold when they engage in the scheme.
- Maturity This scheme has an 8-year maturity period.
- Gift/transfer Investors have the option to gift or transmit these securities to others if they meet the eligibility requirements.
- Withdrawal too soon Premature occurring of these securities is permitted after 5 years.
- Loan collateral – Shareholders can utilise these bonds as loan collateral.
- The implementation process is straightforward and quick, with financial institutions and post offices authorised to provide this facility.
- Modes of payment These bonds can be purchased using various payment methods, including cheques, cash, DDs, and electronic transfers.
- Nomination This scheme allows for nomination while adhering to the laws of the land.
- Tradable Investors can start trading these bonds on stock markets, subject to Reserve Bank of India notifications.
- The valuation of these gold bonds is measured in multiples of grammes, and the smallest unit that can be purchased is one gramme, with a maximum purchase of four kilogrammes of gold per investor, who can be an ordinary person or a Hindu Undivided Household. 20 kg of gold can be acquired for trusts and universities.
- Eligibility Requirements: Unlike other investments, Sovereign Gold Bonds are available to any Indian resident. Individuals, HUFs, beliefs, charitable organisations, universities, etc.
- Interest Rate: The Indian Reserve Bank offers an annual interest rate of 2.50% on gold bonds, which is paid extra a year on the asset value. The rates of return will be effectively proportional to the current market gold price.
- Gold bonds have an eight-year maturity period. Investors can, however, choose to exit the bond after the 5th year on the date of interest charges only.
- Documentation: To buy gold securities, you will need a copy of numerous documents required for the KYC process, such as your driver’s licence, passport, voter ID, or PAN card.
- Bond issuance: According to the GS Act of 2006, gold bonds are only released on trust for the benefit of the Indian Reserve Bank by the Indian Government Stocks. When a person decides to invest in gold securities, he or she receives a Holding Certificate, which can also be transformed into a Demat form.
- The interest on gold bonds is subject to taxation under the Income Tax Act of 1961. The capital gains relevant to the investor are exempt from taxation during the redeeming of gold bonds. Aside from that, an investor receives indexation benefits for long-term capital gains generated.
- The redeemable price will be in rupees and will be based on the estimate of the closing prices of the metal of 999 purity over the previous three days.
Advantages of Sovereign Gold Bonds Sovereign Gold
- Indexation Benefit: If an investor needs to transfer the bonds before actual maturity, the investor will receive indexation benefits, and there is a sovereign assurance on the investment earnings and redemption money.
- Trade Advantages: An investor can also trade gold securities on different stock exchanges within a specific time frame. After 5 years, gold securities can be bartered on the National Bombay Stock exchange and National Stock Exchange.
- Loan collateral: Some banks accept Sovereign Gold Securities as leverage or security against various secured loans.
Sovereign Gold Bonds vs Gold ETFs vs Physical Gold
Sovereign Gold Bond
Risk of theft, wear/tear
Earnings and Returns
Less than the return on gold
More than the return on gold
Lower than the actual return on gold due to making price
High due to its current in electronic form
High due to its current in electronic form
The quality of gold cannot be precisely determined
Tradable on Stock market price
Can be traded and redeemed from the 5th year from the government
Long-term capital gain post three years
LTCG after three years. (No capital profit tax if redeemed after maturity)
LTCG after three years
To summarise, Sovereign Gold Securities are one of the top jewel investments in the market that fall into the category of new-age investment avenues. However, it is recommended that adequate study be done before investing in any investment vehicle.
Sovereign Gold Bond Scheme Interest rate
The government has set an interest rate for this scheme, and all investors are eligible to earn interest. The current annual interest rate is 2.50%, with interest paid every Half yearly, the final accrued interest receivable, and the outstanding sum on maturity. The government can change this interest rate based on its policies.
Risk associated with Sovereign Gold Bonds
Gold is a traditionally safe investment, and the risk involved with sovereign gold securities is typically very low. However, because gold rates are determined by market efficiency, any price drop could put one’s capital at risk, even if one owns physical gold. Regardless of current market prices, an investor can feel at ease knowing that the quantity of gold he acquired remains constant.