If you are looking for a cost-effective way to invest in gold, then you might be interested in the Sovereign Gold Bond scheme. The fifth tranche of Sovereign Gold Bond 2021-22 opened for subscriptions on August 9 for five days. The central bank has fixed the issue price at Rs 4,790 per gram. Introduced in 2015, the Sovereign Gold Bonds aimed to bring a change in the perspective of purchasing gold for financial investment. “Investors looking for the extra 2.5% income and those who would like to make a lump-sum investment for the long-term, Sovereign Gold Bonds would be ideal. On the other hand, investors who are looking to systematically increase their Gold exposure and value liquidity, Gold funds and ETFs would be the vehicle of choice,” said Yogesh Kalwani head, investments at InCred Wealth.
Who can buy?
The gold bond scheme was first introduced to bring a change in the perspective of purchasing gold for financial investment. Resident individuals, Hindu Undivided Family (HUF)s, Trusts, Universities and Charitable Institutions are eligible to apply for the subscription of the bonds.
Sovereign Gold Bond Issue Price
The Reserve Bank of India fixed the issue price at ₹4,790 per gram. The issue price of the gold bonds are derived from the simple average of closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last three business days of the week preceding the subscription period.
“The nominal value of the bond based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period, i.e. August 04, August 05 and August 06, 2021 works out to ₹4,790 per gram of gold,” RBI said.
Where to buy
Individuals can buy gold bonds from commercial banks, Stock Holding Corporation of India Limited (SHCIL), post offices designated by RBI and recognised stock exchanges, either directly or through agents.
Sovereign Gold Bond Interest
The interest on the bonds is fixed at 2.50% per annum. The interest will be credited semi-annually to the bank account of the investor and last interest will be paid on maturity along with the principal. According to the Income Tax Act, 1961 (43 of 1961), the interest is taxable. There will be no capital gains tax on redemption of the sovereign gold bonds.
Minimum and maximum investment
The bonds are issued in denominations of one gram of gold and in multiples thereof. The minimum investment in the gold bonds shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities. In case of joint holding, the limit applies to the first applicant, the central bank clarified.
Sovereign Gold Bond Discounts
A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the gold bonds will be ₹50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
Sovereign Gold Bond Maturity period
The tenor of the bond is 8 years. Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond, the RBI said. The banks allow early encashment or redemption of the bond after fifth year from the date of issue on coupon payment dates.
Sovereign Gold Bond Allotment status
If the customer meets the eligibility criteria, produces a valid identification document and remits the application money on time, he or she will receive the allotment, the bank said.
Other key details to know
The bond will be tradable on exchanges, if held in demat form. A specific request for the same must be made in the application form itself. It can also be transferred to any other eligible investor.
These securities are also eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC).
Sovereign Gold Bond Tax Rules
The interest that you earn from Sovereign Gold Bonds is taxable according to the applicable tax bracket. However, there is no Tax Deducted at Source or TDS. “These gold bonds have a maturity period of eight years with the option for an early exit after five years. The capital gains earned at the time of maturity of Sovereign Gold Bonds are entirely tax-free. If you exit the Sovereign Gold Bonds before maturity through the secondary market the capital gains are taxed in a similar way as physical gold or Gold ETFs,” explained Archit Gupta, founder and chief executive officer, ClearTax.
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