Sovereign Gold Bonds
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
The Bond is issued by Reserve Bank on behalf of Government of India. The interest and price will be notified by RBI at the time of issuance. Interest will be credited semiannually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
DEMAT or Physical: The bonds can be held in the DEMAT. Physical bond holders will be issued Certificate of holding on the date of issuance of the SGB.
Denomination: The bonds will be denominated in units of one gram of gold and multiples thereof.
Minimum size: Minimum permissible investment will be 1 gram of gold.
Maximum limit: Maximum limit of subscription shall be of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time
Interest rate: The investors will be paid Interest on the amount of initial investment at the rate notified by RBI for a particular tranche at the time of its launch and is payable semi-annually.
Tenor: The tenor of the bond will be for a period of 8 years with an exit option from 5th year onwards to be exercised on the interest payment dates.
Redemption: Redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.
Q) Why should I buy SGB rather than physical gold? What are the benefits?
A) 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.
Q) What are the tax implications on i) interest and ii) capital gain?
A) Interest on the bonds will be taxable as per the provisions of the Income-tax Act, 1961. The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond. TDS is applicable on interest payments.
Q) Can a Minor invest in SGB?
A) Yes. The application on behalf of the minor can be made by his / her guardian.