Sovereign Gold Bonds (SGB) are government securities issued by Reserve Bank of India on behalf of Government of India. They are denominated in grams and can be purchased instead of physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
Is sovereign gold bond scheme a unique concept to provide online traders one more investment instrument
The bonds will be open for subscription from Monday, July 10 to Friday, July 14 2017 and will be issued on July 28, 2017. Below are a few questions you may have regarding the scheme and we’ve tried to address them.
Why should I buy SGB rather than physical gold? What are the benefits?
- The quantity of gold for which the you pay is protected, since you receive the ongoing market price at the time of redemption or in case of premature redemption.
- Superior alternative to holding gold in physical form with no risks and costs of storage
- Free from issues like making charges and purity
- Earn periodical interest @ 2.50% per annum on the amount of initial investment
What are the tax implications on i) interest and ii) capital gain?
Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). TDS is not applicable on the online trading of bond. However, it is the responsibility of the bond holder to comply with the tax laws. Capital gains tax treatment will be the same as that for physical gold. Individuals are exempted from capital gain tax if SGBs are held till redemption.
What is the bond issue price?
Price of Bond has been fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the week (Monday to Friday) preceding the subscription period. Issue price of Sovereign Gold Bond is fixed at Rs 2,780 per gram
Also Read : How To Invest in Gold?
What is the minimum and maximum limit for investment?
Minimum investment in the online trading 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. The bonds are issued in denominations of one gram of gold and in multiples thereof. This limit of 500 grams per financial year is applicable even if the bond is bought on any of the exchanges.
What is the rate of interest and how will the interest be paid?
Interest will be credited semi-annually to the bank account of the investor @ 2.50 % (fixed rate) per annum on the amount of initial investment.
Can I use these securities as collateral for loans?
Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time.
Can I trade these bonds?
The bonds held in demat account are tradable on Equity segment of NSE & BSE from the date notified by RBI.
Can I encash the bond anytime I want? Is premature redemption allowed?
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.
How to subscribe for the bonds?
To subscribe for the bonds or to do online trading of bonds, please contact our dealing desk at 022-61208000/42878000.
Also Read : Fixed Deposit v/s Equities – Which is better?
How to sell?
The bond could be sold in the same way you sell your shares in the demat account. Either online or by calling our dealing desk. The bonds could be sold only after they start trading on the exchanges.
For any further queries, please post your comments below and we’ll get in touch with you at the earliest.