“The nominal value of the bond based on the simple average of the closing prices (published by the IBJA) of 999 purity gold over the last three business days of the week preceding the subscription period, i.e. December 13, December 14 and December 15. “, 2023 is equivalent to Rs 6,199 per gram of gold,” RBI said in a December 15 notification.
The issue price of SGBs will be lower by Rs 50 per gram for investors who subscribe online and pay through digital mode. SGBs will be sold through Scheduled Commercial Banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
The sovereign gold bond program was launched by the government in November 2015, as part of the gold monetization programme. Under this scheme, the issues are open for subscription in installments by RBI in consultation with the Government of India. RBI notifies the terms and conditions of the scheme from time to time. SGBs are government securities denominated in grams of gold. They serve as a substitute for holding physical gold. They not only reflect the current market value of gold at maturity, but can also be traded on stock exchanges.
Investors purchase these bonds at the issue price for cash and receive cash at maturity when the bonds are redeemed.
The duration of the SGBs is eight years with an early repayment option after the fifth year to be exercised on the date on which interest is payable.
They offer interest of 2.5 percent per annum, payable semi-annually on the face value of the bond. These bonds can be held in a demat account. At the time of redemption, the investor receives the then current gold price.
“Recently, Tranche 1 of the SGB matured within its eight-year term and a net yield of 12.9 percent was offered. Not only do the bonds bear interest at the rate of 2.50 percent per annum on the initial investment amount, but investors can earn However, without depositing their gold, there is a lock-up period associated with gold bonds,” said Soumil Gonsalves, Senior Associate at Kred-Jure.
Why should I buy SGB instead of physical gold? What are the benefits?
The amount of gold the investor pays for is protected, as he receives the current market price at the time of redemption/early redemption. SGB offers a superior alternative to holding gold in physical form. Storage risks and costs are eliminated. Investors are assured of the market value of gold at the time of maturity and periodic interest. SGB is free from issues such as fees and purity in the case of gold in the form of jewelry. The bonds are held in the books of the RBI or in demat form, thereby eliminating the risk of loss of certificates etc.
Should you invest?
“Sovereign Gold Bonds (SGBs) allow investors to invest in gold without the need to physically hold it. They offer a fixed interest rate, tradability on stock exchanges and potential capital gains tax benefits upon repayment. gold price, seeking periodic interest income could find SGBs advantageous,” said Adhil Shetty, CEO, Bankbazaar.com.
Please note: Interest on the bonds will be taxable in accordance with the provisions of the Income Tax Act, 1961. Tax on capital gains arising on redemption of SGB from an individual has been exempted. The benefits of indexation will be given to long-term capital gains realized by any person upon transfer of bonds. TDS is not applicable on the deposit. However, it is the responsibility of the bondholder to comply with tax laws.
SGB offers a better option than physical gold storage. There are no more dangers or expenses associated with storage. The market value of gold at the time of maturity and monthly interest are guaranteed to investors. If you buy SGB on the secondary market and hold it until it matures in the 8th year, you will benefit from 100% capital gains exemption. As an alternative, you do not have to wait 5 years and can sell the SGB at any time.
“SGBs are often considered a more cost-effective alternative to physical gold because they avoid significant 15-20% manufacturing fees associated with buying and selling jewelry. Holding SGBs in paper form eliminates maintenance hassles and depreciation issues, providing a convenient and efficient solution. effective investment option. Additionally, SGBs offer the ability to earn interest, unlike physical gold, making them more attractive to investors looking for assured income. From a tax perspective, sovereign gold bonds are relatively more tax efficient than physical gold. “SGBs will also benefit from the rising market price of gold, contributing to potential capital appreciation. However, it is important to note that SGBs have a lock-in period of 5 years, which limits liquidity immediate,” said Abhijit Roy, CEO of GoldenPi.
Should you opt for new or existing SGBs?
According to Value Research, a crucial consideration when considering SGBs for investment purposes is whether to go for newly issued SGBs or those already listed in the secondary market.
“Always compare the prices of newly issued SGBs with those of existing SGBs having approximately the same maturity period. It is possible that existing SGBs are trading at a discount.
However, in the secondary market, it is essential to assess liquidity if you do not intend to hold the bonds until maturity. Higher liquidity makes selling easier. On the other hand, if you plan to hold the bond until maturity, liquidity becomes less relevant,” she says in a note.
Whether you acquire an SGB on the primary or secondary market, capital gains at maturity are tax-exempt.
The Gold Bond Scheme 2023-24 – Series IV is scheduled from February 12 to 16. Series I was open for subscription from June 19 to 23 this year and Series II from September 11 to 15.
The maximum subscription limit is 4 kg for individuals, 4 kg for HUFs and 20 kg for trusts and similar entities per financial year.