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For Indians, gold is revered for reasons beyond its commercial value. For many decades, people have purchased gold as an investment. There are certain drawbacks to buying physical gold, including wastage and additional charges. Purchasing Sovereign Gold Bonds (SGBs) is an effective strategy to counter these issues.
SGBs offer a secure and convenient way for you to invest in gold without the challenges of physical ownership. Issued by the Reserve Bank of India (RBI) on behalf of the Government of India, these bonds are denominated in grams of gold and serve as a digital alternative to buying physical gold.
By investing in SGBs, you receive a certificate representing your gold holdings, eliminating the risks associated with storage, fraud, or theft. In addition to tracking the market value of gold, these bonds also pay a fixed rate of interest, enhancing their appeal as a stable and efficient investment option.
Every investor has different needs and no single investment can meet all objectives. However, SGBs offer an effective way to diversify your portfolio through gold. Here are some of the important features of sovereign gold bond schemes you need to consider:
Transparent Pricing
The closing gold prices released by the India Bullion and Jewellers Association Limited (IBJAL) determine the amount of sovereign gold bonds. The cost of a sovereign gold bond is based on the average closing price of gold over the past three working days, from the day of issue to redemption.
Increased Profits with Fixed Interest
SGBs stand out by offering the potential for higher returns than many other investment options. They provide fixed interest of 2.5% per year. Interest is paid every six months. You also benefit from capital appreciation linked to the market. The eight-year fixed tenure further enhances their appeal for long-term wealth creation.
Fixed Tenures
SGBs have a defined tenure as they are fixed-income instruments. These bonds have a fixed term of eight years when purchased from the primary market, commonly referred to as the tenure. You have the option to trade these bonds on the secondary market or opt for early withdrawal.
Option for Early Withdrawal
You can opt for early or premature withdrawals despite the eight-year fixed term. This option becomes available after the completion of five years from the date of issuance. The withdrawal is processed on the interest payment date of the corresponding year.
Easy Resale on Stock Exchanges
You can sell sovereign gold bonds in the secondary market. As per the Reserve Bank of India, such resale is permitted only on specific dates. SGBs need to be held in a dematerialised or Demat account to facilitate trading on stock exchanges.
Tax Benefits on Maturity
You do not have to pay capital gains tax on sovereign gold bonds held until maturity. This means no tax is levied on profits from the difference between the issue price and the redemption price. However, capital gains tax applies when bonds are sold before the completion of the eight-year term.
Minimal Difficulties with Storage
The removal of storage issues associated with physical gold is one of the most notable benefits of Sovereign Gold Bonds. You may purchase SGBs online through banks. This removes the need for storage space or extra security measures like renting lockers.
Investment Without Risk
Investing in SGBs helps you avoid risks like theft, fraud, or receiving impure gold. These risks often come with buying physical gold. SGBs offer a secure investment option. They protect you and ensure the value of your gold through a government-backed structure.
The Sovereign Guarantee
The Central Government of India issues SGBs, thereby offering a sovereign guarantee. This reduces the risk of default and makes SGBs a more secure and reliable choice compared to other forms of gold investment.
Loan Collateral
When applying for bank loans, you may use your SGBs as collateral, increasing the probability that the loan will be approved. SGBs are more versatile because of their dual functioning, which also makes them a desirable financial asset.
GST-Free Investing
SGBs are exempt from GST and manufacturing fees, unlike physical gold. This exemption reduces the overall cost, making SGBs a more economical option compared to purchasing actual gold.
Gold has long been regarded as one of the most valuable investment opportunities in India. Some purchase gold during festivals and special occasions to pass it down as an inheritance. Others believe it brings luck and wealth. Buying gold in the form of coins or bars involves certain restrictions.
SGBs offer an alternative way to invest in gold. They provide you with the benefits of interest income and capital appreciation without the need to hold physical gold. They also reduce risks related to storage and purity. This makes them a convenient and secure option for gold investment.
You face the risk of capital loss if the market value of gold falls. However, you do not lose the gold units you initially purchased.
Yes, you can hold an SGB account jointly.
SGBs offer you a relatively safer investment option compared to many others. You receive interest payments and can also benefit from capital appreciation.
You need to include your PAN Number issued by the Income Tax Department in every SGB application.
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