How to invest in Sovereign Gold Bond Scheme

Sovereign gold bonds of Series IX- 2020-21can be bought between 28th Dec. to Jan. 1 at an issue price of Rs.5000/gram, with a discount of Rs 50/gram for online purchases

Kumar Shankar Roy   /   December 28, 2020
Gold Investment

Investors looking to get below-market rate gold exposure, with a fixed annual income component, can consider subscribing to the Sovereign Gold Bond Scheme 2020-21 – Series IX. Here are 5 important things to know about the offering. Read on.

What is sovereign gold bond

Sovereign Gold Bonds (SGBs) are issued by the government at regular intervals at the prevailing gold price.

The gold bond has fixed tenure of eight years, but can be sold after a lock-in of five years. However, if you hold SGBs till maturity, there will be no capital gain tax on the investment..

The interest on Sovereign Gold Bonds is taxable as per the IT Act, 1961.

The long-term capital gains generated are provided with indexation benefits to an individual or when transferring the bond from one person to another.

You will get an interest of 2.5% annually, which will be paid semi-annually. Plus, the gold price movement (upward or downward) will be reflected at the time of maturity/sale of the bonds via prevalent market value.

Why invest in gold bonds

The quantity of gold for which the investor pays is protected since they receive the ongoing market price at the time of redemption/ premature redemption. Capital gains on maturity are tax exempt.

SGBs offer a superior alternative to holding gold in physical form.

Also, risks and costs of storage are eliminated in the case of these bonds. Investors are assured of the market value of gold at the time of maturity and periodical interest.

Additionally, SGB is also free from issues like making charges and purity in the case of gold in jewellery form.

The bonds are held in the books of the RBI or in Demat form eliminating the risk of loss of scrip etc.

SGBs are one of the best vehicles to participate in gold for the long term if the intent is to hold the bonds until maturity.

One can also sell SGBs in the secondary market.

There is exit option for gold bonds after 5th year on the interest payment dates.

In SGBs, investors even get interest on their investment as opposed to fund management fee 1.25% for gold savings fund or gold ETF

When are bonds available 

The latest gold bonds offering will be open for subscription from December 28, 2020 to January 1, 2021.

What is the price, investment required 

The issue price has been declared Rs 5000 per gram. A discount of Rs 50 per gram will be given to those who are doing payment through online mode. So, the online purchases of sovereign gold bond will happen at Rs 4950 per gram.

Gold bonds are meant for sale to resident individuals, Hindu Undivided Families (HUFs) etc.

The minimum investment limit in gold bonds is one gram which is equal to one gram of the yellow metal.

The maximum limit of subscription shall be 4kg for individuals and HUFs.

How to buy SGBs

You must follow the same Know-your-customer (KYC) norms when you buy physical gold. Hence, keep the KYC documents such as a copy of Driving License, PAN Card, Passport, or Voter ID with you.

Subscription for the gold bonds have to be made in the prescribed application form (Form A).

The investor has to clearly state the grams (in units) of gold, along with the full name and address of the applicant.

Every application must be accompanied by the ‘PAN details’ issued by the Income Tax Department to the investor(s).

Scheduled Commercial Banks (excluding RRBs, Small Finance Banks and Payment Banks), designated Post Offices, Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Ltd. are authorized to receive applications for the gold bonds.

Do note the application receiving office will issue an acknowledgment receipt in Form B’ to the applicant.

Note: If you want help with applying for Sovereign Gold Bond Scheme Series IX- 2020-21, contact our wealth team at [email protected]

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