Sovereign Gold Bonds (SGB) 2023-24: Key Points to Know

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Sovereign Gold Bond Tranche 4

Introduction

For ages, gold has been a favored investment choice for inventors globally, earning respect due to its inherent value and rich history. The popularity of gold as an investment is largely attributed to inflation. The supply of gold is limited in contrast to currencies which can be printed without limits. Therefore, the limited supply of gold makes it a valuable asset during times of inflation. Additionally, gold has the reputation of maintaining its value making it a reliable option for investors looking to protect their purchasing power during economic turbulences.

Due to global conflicts in Ukraine and Israel-Palestine, more and more investors are flocking toward gold as it is a safe-haven asset. In situations where the interest rates are incredibly low, people are looking for different ways to invest, making gold more appealing for returns. Unlike stocks and bonds, gold, being a non-correlated asset, does not move in the same patterns. This unique characteristic makes it a valuable addition to investment portfolios for diversifying portfolios and reducing overall risk. 

Sovereign Gold Bonds (SGB) are an emerging investment instrument that is gaining popularity in recent times. It is a financial instrument that is issued by the Reserve Bank of India on behalf of the government of India. It is an alternative to owning physical gold and is denominated in multiples of grams of gold.

This blog will shed light on the distinctive features of Sovereign Gold Bonds that set them apart from traditional investment options.

 

History of Sovereign Gold Bonds

The Sovereign Gold Bond Scheme was launched on November 5, 2015, by Prime Minister Narendra Modi under the Gold Monetization Scheme. 

The objective behind launching the Sovereign Gold Bond Scheme is to reduce the demand for physical gold and encourage individuals to invest in financial savings.

The Sovereign Gold Bond is backed by the government allowing investors to earn market-based returns, along with a 2.5 percent interest rate plus capital appreciation, without needing physical gold. Each Sovereign Gold Bond unit is worth the value of one gram of gold of 99.9 percent purity in value.

 

Sovereign Gold Bond (SGB) Scheme 2023-24

The government of India has announced Series III and IV of the Sovereign Gold Bond Scheme 2023-24. The dates of the upcoming sovereign gold bond issuances are given below.

S.No. Tranche  Date of Subscription Date of Issuance
1. 2023-24 Series III December 18- December 22, 2023 December 28, 2023, Thursday
2. 2023-24 Series IV February 12- February 16, 2024 February 21, 2024, Wednesday

Period of subscription

Under this scheme, the subscription to the Gold Bonds will be available from Monday to Friday on the specified dates mentioned above. However, the Government reserves the right to close the Scheme before the specified period with prior notice.

Advantages of Sovereign Gold Bonds 

Advantages of Sovereign Gold Bond
Advantages of Sovereign Gold Bond

Interest Payment: Sovereign Gold bonds offer a 2.5% interest rate which is paid semi-annually on the issue price. This is one of the significant advantages of SGB, ensuring a consistent interest income regardless of whether the cost of gold rises or falls. 

Storage Costs: Sovereign Gold Bonds are available in demat format. When you invest in SGB, it is stored electronically in demat format and not in physical form.  So, there is no hassle about the safety of gold or paying an annual charge for storing it in a bank locker. 

No Issue of Purity: When purchasing physical gold, there is always the possibility of impurities being present. However, Sovereign Gold Bonds are issued by the Reserve Bank of India and the government of India and thus are said to have 999 purity. 

No Tracking Error: Gold ETFs and Gold Funds try to replicate the returns of physical gold, yet factors like expense ratios and the movement of funds in and out can result in slightly lower returns. However, Sovereign Gold Bonds do not face any such issues.

Tax Benefits: If SGBs are held till maturity, capital gains tax is exempted. There is the flexibility to transfer the bond before maturity but in such cases, capital gain tax will not be exempted. It is noteworthy that the interest is fully taxable based on an individual’s tax slab. However, interest earned from Sovereign Gold Bonds is not subjected to TDS.

Collateral against Loans: Sovereign Gold Bonds can be used as collateral for borrowing bonds from financial institutions and non-banking financial companies. The loan-to-value ratio is equal to the ordinary gold loan as per RBI standards. However, the decision to grant loans against SGBs is subject to the decision of banking institutions, and the minimum and maximum loan amounts vary across different banks. The lending institutions require SGBs to be pledged in either a Demat or a physical certificate form as security. 

Tradable: The government of India issues SGBs for an 8-year tenure, which becomes eligible for early redemption after the fifth year. SGBs can be traded before their maturity as they are tradable on exchanges.

Portfolio Diversification: Investing in gold bonds helps to diversify the portfolio, thereby mitigating risks. They serve as a secure means during market fluctuations, providing stability to an investor’s overall holdings.

No Making Charges: There are no making charges or GST incurred while investing in Sovereign Gold Bonds, a cost that is incurred in physical gold.

 

How is the Price of Sovereign Gold Bond determined?

The pricing of Sovereign Gold Bond is determined through the average price quoting on IBJA (Indian Bullion & Jewellers Association Limited) over the last three days. Similarly, the price at the time of redemption is determined using a similar mechanism.

 

Ways of Exit of Sovereign Gold Bonds

  • Sovereign Gold Bonds shall be redeemed after the maturity period of 8 years. Upon maturity, the Gold Bonds shall be redeemed and the redemption price shall be based on the simple average of the closing price of gold of 999 purity of the last 3 working days of the week preceding the subscription period, published by the India Bullion and Jewelers Association Limited (IBJA).
  • However, premature redemption is permitted after the 5th year from the date of issue of bonds and such repayments will be made on the date on which interest is payable.
  • Though Sovereign Gold Bonds are not redeemable until the 5th year of investment, they have the flexibility to be sold in the secondary market as these bonds are listed on exchange after they’re issued.

Tax Implications on Sovereign Gold Bonds

Investing in Sovereign Gold Bonds provides tax benefits. While the interest earned on these bonds is subject to taxation based on the investor’s income tax bracket, it’s important to note that Tax Deducted at Source (TDS) does not apply to the interest income earned through these bonds.

Capital gains tax is exempted when Sovereign Gold Bonds are redeemed after the 8-year maturity period. However, if investors sell these bonds before the maturity term, then any resulting capital gains will be subject to capital gains tax.

 

Who can invest in Sovereign Gold Bonds?

The Sovereign Gold Bonds may be held by persons resident in India, being an individual, in his capacity as such individual, or on behalf of a minor child, or jointly with any other individual.  under the Foreign Management Act, of 1999, Hindu Undivided Families (HUFs), trusts, universities, or charitable institutions.

 

What is the Minimum and Maximum Amount of Investment in Sovereign Gold Bonds?

Minimum Investment 1 Gram Gold
Maximum Investment 4 kg for individuals/HUF/first applicant in joint holding, and 20 kg for trusts and similar entities notified by the government from time to time per fiscal.


What are the Documents required to invest in Sovereign Gold Bonds?

The following documents are required for investing in Sovereign Gold Bonds.

  • Pan Card
  • Bank Cheque or statement
  • Client Master of Demat

How to apply for Sovereign Gold Bonds?

The process of purchasing SGBs is quite straightforward. Investors can invest in SGBs during active series through the TheFixedIncome portal through an easy process. 

How-to-apply-for-SGB?

Conclusion

Investing in Sovereign Gold Bonds provides an excellent opportunity for both seasoned investors and beginners in the world of financial investments. These bonds stand out as a reliable avenue for investors seeking to diversify their portfolios or hedge against economic uncertainties as it comes with a unique blend of security, returns, and flexibility. Thus, SGBs emerge as a beacon of stability, offering a secure way to partake in investing in gold while reaping its varied benefits. So seize the opportunity to invest in SGBs which are going to be issued on December 18, 2023, and build a secure financial future.

 

FAQs

Q1. What are Sovereign Gold Bonds?

Ans. Sovereign Gold Bonds are financial instruments issued by the government. They are denominated in grams of gold i.e. 1 SGB is equal to 1 Gram of Gold.

Q2. When did Sovereign Gold Bond come into existence?

Ans. Sovereign Gold Bond came into existence on November 5, 2015.

Q3. Is TDS deducted from interest earned while investing in Sovereign Gold Bonds?

Ans. No, TDS is not deducted from interest while investing in Sovereign Gold Bonds.

Q4. Can  Sovereign Gold Bonds be traded?

Ans. Yes, Sovereign Gold Bonds can be traded as they are listed on the stock exchanges. 

Q5. Is a minor eligible for investing in Sovereign Gold Bonds?

Ans. Yes, minors are eligible to invest in Sovereign Gold Bonds but guardians or parents have to apply on behalf of the minor.

Q6. Are Sovereign Gold Bonds subject to taxation after the 8-year maturity period?

Ans. If Sovereign Gold Bonds are held up to maturity, they will be exempted from capital gains tax. 

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