The Sovereign Gold Bond scheme (SGB) is a government initiative that offers you an opportunity to invest in gold without the need to purchase physical gold. The Government of India launched the scheme in November 2015 to reduce the demand for physical gold and shift it towards financial savings. The scheme is designed to encourage investment in gold by offering a secure, efficient, and cost-effective alternative to purchasing physical gold.
The bonds are denominated in grams of gold and are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The bonds have a tenure of eight years, with an option to exit after the fifth year. The minimum investment in the scheme is one gram of gold, and the maximum investment limit is four kilograms for individuals, and twenty kilograms for trusts and similar entities.
Features of the Sovereign Gold Bond scheme
Here are some of the salient features of the Sovereign Gold Bond scheme:
- Issuance: The Reserve Bank of India issues the bonds in tranches on behalf of the Government of India.
- Denomination: The bonds are denominated in grams of gold. This comes with a minimum investment of one gram and a maximum investment of four kilograms for individuals.
- Interest: The bonds carry a fixed rate of interest of 2.50% per annum on the nominal value of the investment.
- Tenure: The tenure of the bonds is eight years, with an option to exit after the fifth year.
- Liquidity: The bonds are tradable on stock exchanges within a specified period of the issuance date.
- Taxation: The interest earned on the bonds is taxable as per the Income Tax Act, 1961. However, the capital gains arising from the redemption of the bonds are exempted from tax if held till maturity.
- Collateral: These bonds can be used as collateral for loans from banks, financial institutions, and Non-Banking Financial Companies.
Advantages of Sovereign Gold Bond Scheme
The Sovereign Gold Bond Scheme offers the following advantages:
- Secure investment: The scheme offers a secure investment option with the assurance of the Government of India.
- Fixed interest: The scheme offers a fixed rate of interest, which is not available with other loans.
- Capital appreciation: The scheme offers capital appreciation on the investment made, based on the market value of gold.
- Flexibility: The scheme offers flexibility in terms of investment amount. You can invest in multiples of one gram, up to a maximum of four kilograms.
- Low risk: The Sovereign Gold Bond Scheme is a low-risk investment option. This is because the gold prices are relatively stable compared to other asset classes.
- Easy liquidity: The bonds can be traded on stock exchanges, making them easily liquidatable.
- Lower capital gains tax: The capital gains arising from the redemption of the bonds are exempted from tax if held till maturity. Even if the bonds are sold before maturity, the capital gains tax is lower compared to physical gold.
How can you invest in Sovereign Gold Bond scheme?
The process of investing in the Sovereign Gold Bond scheme is simple and can be done online. You just need your PAN card and basic KYC documents to invest in the scheme. The payment can be made through cash, cheque, or digital payment modes.
While buying Sovereign Gold Bonds is great way to invest in gold and earn returns, it is essential to understand the connection between gold bonds and loans. These bonds are not only an excellent way to invest but also a great source for obtaining instant funds. You can also pledge these bonds as collateral against loans to cover your financial needs.
Here is how you can apply for a loan against your bonds:
Step 1: Select a lender
Once you have confirmed that your bonds are eligible for a loan, the next step is to select a lender. You can approach banks, Non-Banking Financial Companies (NBFCs), or other financial institutions for a loan against your bonds. Research the various lenders, compare the interest rates, and choose the one that best fits your needs.
Step 2: Submit the required documents
The next step is to submit the required documents to the lender. The documents required for a loan against bonds typically include:
- Proof of identity (such as PAN card, Aadhaar Card, passport, etc.)
- Proof of address (such as a utility bill, bank statement, etc.)
- Proof of ownership of the bonds
- Demat statement or physical bond certificates
Step 3: Evaluation of bonds
Once you have submitted the documents, the lender will evaluate the value of your bonds. The value of the bonds determines the amount of loan that you can get. Typically, you can get a loan of up to 80% of the value of your bonds.
Step 4: Loan disbursement
After the evaluation, the lender will disburse the loan amount to your bank account. The loan amount can be used for any purpose, such as paying off debts, financing a new investment, or funding a major expense.
Step 5: Repayment
Finally, you will need to repay the loan amount along with the interest to the lender. The repayment terms and interest rates vary from lender to lender. It is important to read the terms and conditions of the loan agreement carefully before signing it.
In conclusion, getting a loan against bonds is a convenient way to get funds without selling your bond investments. By following the steps outlined in this article, you can get a loan against your bonds easily and quickly. Remember to do your research, compare the lenders, and read the loan agreement carefully before signing it.
Also, you can take a look at the gold loan provided by Bajaj Finance if you need one to manage your urgent expenses. Avail of low gold loan interest rates and get the best value for a loan against your gold jewellery, with loan amounts ranging from Rs. 5,000 to Rs. 2 crore.
