There may soon come a time when one would not even have to buy physical quantities of gold. The Indian government however is on the fast track to making this a reality by bringing forward the Sovereign Gold Bond scheme. This even allows you to hold gold digitally in your Demat account just as you keep stocks and sell whenever you want.

In this article, we take a look at what Sovereign Gold Bond is, its features and whether we should invest in Sovereign Gold Bond. Keep reading to know more!

Sovereign Gold Bond Scheme - getting-smart with investment in gold

What is the Sovereign Gold Bond Scheme?

The sovereign gold bond scheme was launched in November 2015. It was launched with an objective to reduce the demand for physical gold and shift a part of the domestic savings used for the purchase of gold into financial savings in electronic form.

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Sovereign Gold Bond Scheme are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by the Reserve Bank on behalf of the Government of India.

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The bonds will be sold through scheduled commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges i.e National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

The Bonds will be restricted for sale to resident individuals, HUFs, Trusts, Universities and Charitable Institutions.

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Features of Sovereign Gold Bond Scheme

  • The bonds will be issued by the Reserve Bank of India on behalf of the Government.
  • It will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
  • The tenure of the bond will be for a period of 8 years with exit options in the 5th, 6th,7th year to be exercised on the interest payment date.
  • The minimum permissible investment limit is 1gram and the maximum is 4 kgs for individuals.
  • The investor will receive a fixed rate of 2.5% coupon payment semi-annually on the nominal value.

These bonds are traded on the stock exchange within a fortnight of issue. The redemption price will be in Indian Rupees based on the simple average closing price of gold of 999 purity on the previous 3 working days published by IBJA.

Should you invest in the Sovereign Gold Scheme (SGB)?

Gold has been one of the most important & strategic investment assets for centuries. Allocating a small portion of our portfolio to the SGB is one of the easiest and most convenient ways to diversify.

Sovereign Gold Bond(SGB) is a good choice for individuals who want to buy gold solely for investment purposes. It also offers tax advantages when the bond matures. However, it is not intended for trading purposes.

SGB also ensures that the quality of gold is maintained. In addition to this, it ensures that investors are safeguarded from the risk due to the gold investment being in Demat or E-form. The SGB also guarantees a fixed return of 2.5% per annum (semi-annual) on the nominal value of gold apart from the price appreciation return which one derives when investing in SGB. Furthermore, SGB can be used as collateral for loans which adds to its investment appeal.


In Closing

Since Gold has given around 10% CAGR return on a historical basis the investment is already attractive. SGB however also offers an additional 2.5% making it a very good value proposition for investors looking for a safer and less risky investment.

Investment in gold also acts as a hedge against recession & stock market crash. This has been observed historically that gold moves inversely to the stock markets across the world.

The biggest advantage of investing in SGB is the tax benefit, as any capital gains on it are completely tax-free. The interest received is however subjected to the taxes as per the personal tax slab of the investor as applicable. Happy Investing!

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