In this article, we are going to discuss how one can invest in Gold without physical holding. This investment is called Sovereign Gold Bond. Let’s learn its basics.
In November 2015, Sovereign Gold Bond Scheme was launched by the Government under Gold Monetisation Scheme. As per the scheme, the issues would be made open for subscription in tranches by RBI in consultation with GOI. RBI notifies the terms and conditions for the scheme from time to time. The rate of SGB will be declared by RBI before every new tranche by issuing a Press Release.
Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold which allows investors to invest in gold without physical holding. It eliminates the risk of cost and storage.
A person resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Bonds are restricted for subscription by Resident Individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions. Each family member can buy the bonds in his/her own name if they satisfy the eligibility criteria.
A minor can also invest if his/her guardian makes the application in the minor’s name.
The person shall make an application in prescribed Form A (or any other form as near as thereto) to specified scheduled commercial banks, designated post offices, Stock Holding Corporation of India (SHCIL), and authorized stock exchanges (BSE and NSE). The application should clearly state the grams of gold, the full name, and the address of the applicant. The application must be accompanied by a PAN number (KYC documentation). Payments can be made in cash (maximum Rs 20,000), demand draft, cheque, or electronic banking.
The form can also be downloaded from the RBI’s website. A customer can also apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment is made through digital mode.
The minimum permissible limit of investment is 1 gram and the maximum limit is 4kg for Individuals, 4 Kgs for HUF, and 20 Kgs for trusts and similar entities per fiscal year. Joint holding is allowed and the limit applies to the first applicant.
The annual ceiling would include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions.
There is no tax on the proceeds of redemption of SGB to an individual.
Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (Sec 43 of 1961).
The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.
The Bonds have an interest rate of 2.5% (fixed rate) per annum on the amount of initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
Certificate of Holding would be issued to the investors on the date of issuance of the SGB. The certificate can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI by email if the email address is provided in the application form.
Know about the Redemption Features of Sovereign Gold Bond