Sovereign Gold Bonds: Should You Buy From Exchanges

Gold has always been one of the most popular investments in India. Since individuals can use it for personal purposes in the form of jewellery and can sell it quickly at the current prices, it witnesses constant demand, which results in a steady gold price increase. Some investors, who only want to buy gold for investment purposes to profit from the increase in price, find it difficult to store the physical gold and cover the extra storage cost. The Reserve Bank of India offers a unique investment instrument known as the Sovereign Gold Bonds, which can allow investors to earn from regular interest and gold price appreciation without sowing physical gold.

If you want to invest in gold online and save on storage and safekeeping costs, you can look to invest in Sovereign Gold Bonds. This blog will help you understand Sovereign Gold Bonds (SGBs) meaning and how they can be an ideal alternative to owning physical gold.

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• Sovereign Gold Bonds (SGBs) are government-backed securities that allow investment in gold without holding it physically.
• SGBs provide investors with semi-annual interest and redemption at current gold prices at maturity.
• SGBs can be traded on stock exchanges if held in dematerialised form, and the RBI provides a discount of Rs. 50 if they are bought online.
• The bonds have a tenure of 8 years, with an exit option available after the 5th year.

Sovereign Gold Bonds (SGBs) meaning refer to securities issued by the Reserve Bank of India (RBI) as an alternative to buying physical gold. The main purpose of issuing SGBs is to raise capital from the general public while allowing them the benefits of gold investments without the hassle of storage and purity concerns. SGBs are issued in grams of gold, with a minimum investment of 1 gram and a maximum limit of 4 kg for individuals, 4 kg for Hindu Undivided Families (HUFs), and 20 kg for trusts and other entities per financial year. The bonds have a maturity period of 8 years and provide 2.5% interest per annum on the initial investment amount, in addition to potential capital appreciation based on current gold prices.

RBI issues Sovereign Gold Bonds in different tranches annually and makes them available to the general public through numerous channels, such as post offices, commercial banks, stock exchanges, and online stock broking platforms. You can buy the SGBs using these channels. Furthermore, RBI provides a discount of Rs. 50 per SGB to investors who buy the bond through online channels. You can either buy them when they are issued or buy them from the secondary market afterwards.

Here are some factors to consider before buying SGBs online:

• Discounted price: The trading volume of SGBs is generally very low as they are issued in tranches. Because of this, the bond usually trades at a lower price than the current market price of gold. However, if you hold the bond till maturity, you will receive the payout based on the current gold price, not the bond trading price.
• Liquidity: It is important to assess liquidity before buying SGBs, as they are affected by the general demand and supply. If you are buying the bond to sell before maturity, it is better to invest in an SGB series with high demand.
• Tax implications: The interest earned on SGBs is taxable under the applicable income tax rates. However, the capital gains on redemption after 8 years are tax-exempt. If sold before maturity, the gains are taxed based on short-term or long-term capital gains rules.
• Redemption: On maturity, RBI calculates the redemption amount based on the average closing price of 999-purity gold for the last 3 business days before the redemption date, as per the India Bullion and Jewellers Association (IBJA).

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Sovereign Gold Bonds are ideal investment instruments that allow investors to buy gold online through bonds, earn interest on the investment amount, and receive the redemption amount based on the current gold prices. They make for an ideal alternative to buying physical gold, as you don’t pay to cover the extra storage expenses. Since the RBI issues them, they are significantly safer with the purest form of gold. However, it is important to analyse them based on your investment goals to ensure your SGB investments complement your overall portfolio. Now that you know what are Sovereign Gold Bonds, you can make informed investment decisions.