Gold Bonds are securities issue by the government whose value is expressed in denominations of gold in grams. These are replacements of impression of holding physical gold. These securities are generated by the Reserve bank of India on behalf of government of India to be made available to the people from various financial institutions like banks and post office. The issue prices of sovereign bonds are fixed at Rs 2901 for per gram of gold as per the latest announcement in the 6 th Tranche on 14 th of April 2017. This fixed issue price is decided by Reserve bank of India.
What It Is
Sovereign gold bond or sgb are securities issued by the government, which are represented in weight age value of gram for gold. This weight age gram value of gold is a replacement to real gold. A person who wants to invest in Sovereign Gold bond have to make the payment for buying it in cash, and on the maturity of the term period, the investor gets his return of the matured amount in cash. These sovereign gold bonds are issued for the people by the Reserve Bank of India on behalf of Government of India.
Benefits over Physical Gold
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.
The cost involved in buying sovereign old bond is the issue price of the sovereign gold bond which is fixed at Rs 2893 for the year 2016 – 2017 by the reserve bank of India. Other cost that may be borne onto while investing in sovereign gold bond is the transaction fee and the brokerage charge, however the same may or may not be applicable, as these prices involved varies from institution to institution.
Tax on Gold Bond
The returns of capital gold bonds on maturity are at 2.75% interest rate, these incomes from the interest rate will be taxed by the government under IT act 43 of 1961. However the taxation of on capital gain of the entire assets value of sovereign gold bond have been exempted, other than the interest income received on liquidating the sovereign gold bond.
Interest and Tax on Interest
The interest rate of sovereign gold bond varies from 2.50% to 2.75% this interest is evaluated on the money invested in the bond. The interest rate receivable however varies from institution to institution. The interest received from the investment in sovereign gold bonds is taxable under IT act 43 of 1961.
Tracking your Bond Error if Any
Sovereign gold bond are securities issued by the Reserve bank of India and since it is not a traded on stock market, and the price of the gold is fixed and not fluctuating there are no tracking errors involved in case of sovereign gold bonds. Further since there are no additional charges included in sovereign gold bonds hence there are no chance of difference between the indexes as a result there are no tracking error in case of sovereign gold bonds. Thus it is very easy to keep a closer track of your gold bond.
Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities, charitable institutions, etc.
Minimum and maximum limit for investment
The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum buying limit of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.
Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.
Procedure of redemption
The investor will be advised one month before maturity regarding the ensuing maturity of the bond.
On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record.
In case there are changes in any details, such as, account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.