Sovereign Gold Bonds: 6 golden reasons to invest in government-backed securities
Sovereign Gold Bonds 2020-21 (Series XII) will open for subscription from today (March 1). The issue will close on March 5. The issue price for sovereign gold bonds has been fixed at Rs 4,662 per gram.
It is issued by the Reserve Bank India on behalf of the Government of India. The Bonds are be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
The government in consultation with the Reserve Bank of India has decided to allow discount of Rs 50 per gram from the issue price to those investors who apply online and the payment is made through digital mode. For such investors the issue price of Gold Bond will be Rs 4,612 per gram of gold.
6 golden reasons to invest in Sovereign Gold Bonds:
1. No storage hassles
Unlike physical gold, there is no issue of storage when it comes to invest in SGBs, hence they are more secure. The tenor of the Bond will be for a period of 8 years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates.
2. Guaranteed returns of 2.5% p.a. interest
The investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value.
3. No GST, making charges
There is no goods and services tax (GST) levied on sovereign gold bonds, unlike gold coins and bars. When you buy digital gold, you need to pay 3% of GST just like in case of buying physical gold. Also, there are no making charges on SGBs
4. Liquidity
Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
5. Collaterals for loans
Sovereign gold bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to the ordinary gold loan mandated by the Reserve Bank of India (RBI) from time to time. The lien on the bond shall be marked in the depository by the authorised banks.
6. No Capital Gain Tax on redemption
Sovereign Gold Bond Scheme was launched by the government in November 2015, under Gold Monetisation Scheme. Under the scheme, the issues are made open for subscription in tranches by RBI. The redemption price is based on simple average of closing price of gold of 999 purity of previous 3 working days published by India Bullion and Jewellers Association (IBJA).
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