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What is the Sovereign gold bond scheme?

Gold is one of the most traditional and conventional commodities used by Indians for investment. The government of India came up with Sovereign Gold Bond Schemes as a substitute to offer a way of investment in Gold which has many more benefits for the traditional and the new set of investors. One of the biggest benefits associated with this particular scheme is that it is transparent and is regulated by the Reserve Bank of India. There are a lot of people in our country who buy gold with the purpose of investment and not just as an accessory or ornament. A Sovereign Gold Bond scheme is an ideal option for them. It also helps in cutting down on the storage value of gold and saving the money that is spent on making charges. Since these sovereign gold bonds are government securities, they are much safer than physical gold. Following are some more important pointers that you need to know regarding investments in a Sovereign Gold Bond.

How does the sovereign gold bond scheme work?

The working of a sovereign gold bond scheme is quite easy to understand. In order to subscribe for an SGB, the investors will need to pay the decided price of issuance in form of cash, cheque, DD, Online Modes. These bonds are then redeemed only once they reach maturity. These bonds can also be traded or sold on stock exchanges. One of the main reasons for these bonds to work well is because their value is decided or denominated in gold grams, in the form of multiples. This is why a lot of people prefer it as a substitute for investing in the physical form of gold. In order to purchase a bond, you would simply need to approach banks, Stock Holding Corporation of India Limited (SHCIL), selected post offices, an agent who is authorized by the SEBI (Securities and Exchange Board of India). If you want to redeem the bond later, the corpus equating to the current market value of your holdings would be deposited to your registered bank account. Additionally, an interest is also earned annually, making it a good choice of investment.

What are the main features of a Sovereign Gold Bond Scheme?

The main features of a Sovereign Gold Bond Scheme that you should know before you plan to invest in one are:

  • The Sovereign Gold Bond Schemes can be best described as government securities and are denominated in units of grams of gold.
  • They are issued by the Indian government on behalf of the RBI .
  • The investors will gain interests based on the gold price in the current market.
  • Apart from the interests of the gold price, an additional fixed interest is also payable semi-annually on the amount equating to the value, if the investment was made initially.
  • These bonds carry a sovereign guarantee, based on both- the redemption amount and even the interest.
  • The minimum investment that can be made by an individual is equated to 1 gram and a maximum investment of 4 kgs can be made too.
  • It is available in the form of DEMAT as well as paper.

What are the main benefits of this scheme?

There are plenty of benefits associated with this scheme. Some of the most important benefits of investing in a Sovereign Gold Bond scheme include:

  • These bonds can also be used as collaterals for loan procurement.
  • You can use these bonds for trading in case you are considering an early exit.
  • The specified tenor of this particular bond is for a duration of 8 years, but there is an option of exiting from the 5th year onwards.
  • The biggest benefit is that they carry a sovereign guarantee, not only on the interest earned, but also on the capital which is invested.

What are the interest rates associated with a Sovereign Gold Bond Scheme?

For investors who do like risk-free investments, Sovereign Gold Bond Schemes are ideal. There is a fixed rate set by the government for this particular scheme. This makes everybody eligible for earning an interest on this investment. The current rate specified by the authorities is 2. 50% per annum and the interest is paid semi-annually (every six months). This interest rate can be changed as per the policies of the government.

How does one go about the KYC procedure of a Sovereign Gold Bond Scheme?

There are many entities that are authorized by the Reserve Bank of India for the trading of Sovereign Gold Bonds, including many different instruments of National Stock Exchange. If you are an existing customer with any of these specified authorities, then you would not need to go through the KYC procedure again. However, if you are a new customer, then documents like Aadhar Card, Passport, Voter ID card, A PAN or a TAN card are valid.

How can a consumer buy this scheme?

Approximately 21 different National Banks and many private institutions are authorized to sell a sovereign gold bond scheme. You can go onto the online portals of any of these entities and apply for a sovereign gold bond scheme here. Additionally, for consumers who are not inclined towards digitization yet, can also get a form from a post office. One can also download the form from the website of RBI.

FAQs On Sovereign Gold Bond Scheme

What is the Sovereign Gold Bond Scheme?

Government securities, denominated in grams of gold are known as sovereign gold bonds. They are considered to be substitutes of physical gold. The RBI issues these bonds on behalf of the Indian Government.

Why should I buy the Sovereign Gold Bond instead of Physical Gold? What are the main benefits?

Since gold is a volatile commodity, the particular quantity of gold remains protected even during redemption. The storage risks get eliminated considerably and additionally, there is no making charge involved with a sovereign gold bond.

What are the risks involved with investing in an SGB?

Sometimes, the risk of capital loss remains as the market price declines. However, the money invested in terms of the gold units that were paid for initially remains intact.

Who is eligible for making an investment in an SGB?

Residents of India and people eligible under the Foreign Exchange Management Act can make an investment in a Sovereign Gold Bond. Parents or Guardians can do the same on the behalf of a minor.

What are the authorized agencies that sell SGB?

Bonds can only be sold through registered trading members of the NSE and other channels that are approved by the SBI.

What is the issue price of Sovereign Gold Bonds?

The issue price of an SGB is in multiples of grams of gold with basic unit being 1 gram of gold.

What is the maximum and minimum limit for investment in SGB?

A minimum of 1 gram per year and a maximum of 4 kgs per year can be invested in SGB.

What is the rate of interest of SGB and how can one get the interest?

The rate of interest on an SGB is 2.50% and this interest is credit per year in investor’s account.

When are the customers of SGB issued a holding certificate?

For customers who do not operate a demat account, the holding certificate is further issued on the issuance date by the trading members of NSE through whom the purchase of an SGB was made.

What will I get when I redeem an SGB?

The redemption amount is equivalent to the market value of gold in grams which were originally invested in INR.

What are the KYC requirements for SGB?

No KYC is required in case of existing members of the trading entities. However, for new customers, one will be required to submit an Aadhar Card, TAN or PAN, Voter ID Card and a passport.

Can an SGB be encashed anytime?

A typical bond lasts for a duration of eight years. However, it can be redeemed from fifth year onwards.

Can a Sovereign Gold Bond be used as a collateral for loans?

Yes, a Sovereign Gold Bond can be used as a collateral in order to get a loan from an NBFC, banks and financial institutes.

Are there any risks in investing in SGBs?

While, there is a sovereign guarantee given on capital investment and even the returns that one earns in a SGB. But, in some cases, a risk may arise for a capital loss, if the market price declines. However, the price of the units of gold which was given during the initial investment stays guaranteed and that money is not lost.

Is joint holding allowed in Sovereign Gold Bond Schemes?

Yes, there is no rule for only single holding and yet, joint holding is allowed for gold bond schemes.

Where can investors get the application form?

Approximately 21 different National Banks and many private institutions are authorized to sell a sovereign gold bond scheme. You can check out the online portals of any of these entities and apply for a sovereign gold bond scheme here. Additionally, for consumers who are not inclined towards digitization yet, can also get a form from a post office. One can also download the form from the website of RBI.