Sovereign Gold Bond opens for subscription today; Know the key points before investing

Reasons to invest in sovereign gold bonds (Credits: Shutterstock)

RBI has opened Series IV of its Sovereign Gold Bond Scheme 2022-23 for subscription on March 6 (Monday).

Sovereign Gold Bond Scheme Day 1: The Reserve Bank of India (RBI) has opened Series IV of its sovereign gold bond scheme 2022-23 for subscription on March 6 (Monday). This would be the last tranche for this fiscal. Subscriptions for this will be available until March 10. RBI has fixed the issue price of Rs 5,611 per gram of gold. In comparison, the RBI has proposed an issue price of Rs 5,409 per gram in December 2022. Interestingly, there is a discount of Rs 50 per gram for investors who apply online and make payments through digital means.

Here are 10 things to know about the Sovereign Gold Bond Scheme:

Minimum and maximum investment

The minimum investment allowed is one gram of gold and the maximum is 4 kg for individuals, 4 kg for Indian Undivided Families and 20 kg for trusts and similar entities per financial year. These bonds can be purchased from banks, stock holding corporations, post offices and recognized stock exchanges.

Maturity period

Gold bonds have a maturity of eight years, with an exit option after the fifth year. However, if an investor intends to exit before the 5-year lock-in period, they can always exit by selling the bonds on stock exchanges. The redemption price is based on the prevailing price of gold at that time.

Who can invest in SGB?

According to the Foreign Exchange Management Act (FEMA), any resident can invest in SGBs. Individuals, HUFs, public or private trusts and universities can invest in SGBs. Even investments can be made on behalf of a minor by his guardian. NRIs cannot invest in these bonds, but are allowed to hold these bonds taken in the denomination of a resident investor.

Storage is not as difficult as physical gold

Unlike physical gold, there are no custody issues when investing in SGBs, so they are safe.

No GST and fees

Unlike gold coins and bars, there is no Goods and Services Tax (GST) levied on sovereign gold bonds. When you buy digital gold, you have to pay 3 percent GST, just like when you buy physical gold. Also, there is no charge for SGB

Can be used as collateral for a loan

Sovereign gold bonds can be used as collateral for loans. The loan-to-value ratio (LTV) should be equal to the normal gold loan issued by the Reserve Bank of India (RBI) from time to time. Banks authorized to guarantee the bond shall mark the depository.

The capital at the time of purchase is not taxed

The Sovereign Gold Bond Scheme was launched by the government in November 2015 under the Gold Monetization Scheme. Issues under the scheme are open for subscription by RBI tranches.

Necessary documents

Documents required to avail these bonds are Voter ID Card, Aadhaar Card/PAN or TAN / Passport.

Should you invest in SGB?

Traditionally, gold has been considered a safe haven investment, especially when markets are experiencing bearish periods or extreme volatility. As a hedge, gold not only provides diversification in your portfolio, but also inversely correlates to the market during times of stress like the current one. According to experts, SGBs should be a part of your investment portfolio as it helps in diversification. According to financial planners, 10-15 percent of an individual’s portfolio should be invested in gold.

Moreover, out of all the available gold investment alternatives, SGBs offer the highest returns, which include capital gains (market returns due to rising gold prices) as well as 2.5 percent compound interest per annum, which are key features.

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