Gold is an excellent way to spread your investments and lower your financial risk. It makes portfolios more stable because gold prices tend to go against the stock price. One secure way to invest in gold is a Sovereign Gold Bond. They are an excellent way to make money when markets are unreliable. They are also seen to protect investors against inflation and provide a safe place to go when things are uncertain.
Let’s understand more about the scheme by the Government of India and how it can benefit investors.
What are Sovereign Gold Bonds?
SGBs are government-backed securities introduced in 2015 as part of the Gold Monetisation Scheme. Each SGB is worth 1 gram of gold or more. You can think of them as a replacement for gold bars or coins, but you won’t have to pay the costs of buying, selling, and storing them. The government issues them through the RBI.
These are government securities that investors can use instead of real gold. SGBs are easy to buy and manage. They have a term of eight years and an annual interest rate of 2.5%, paid every six months. A person can only purchase a maximum of 4 kg per financial year, and a trust can only buy a maximum of 20 kg. The only thing you need to buy SGBs is a PAN card. You can’t invest in these government bonds if you don’t have one.
The scheme is locked in for eight years, with an exit option in the 5th, 6th, and 7th years, which can be used on the dates of interest payments. RBI decides how much each tranche will cost by taking the simple average of the closing prices of 999 purity gold as reported by IBJA on the final working days before the week set aside for subscriptions.
Investors can buy these RBI bonds in physical, digital, or dematerialised forms. Once the bonds have been purchased in person, investors can transfer them to their Demat accounts by asking for them. RBI then handles the dematerialisation on their end, keeping them on their books until that time.
What are the Benefits?
Sovereign Gold Bonds can be a good investment for an investor who wants to diversify his portfolio or is looking for a low-risk investment. Here are some ways that SGBs can benefit investors:
- When getting a loan from a bank, you can use them as collateral.
- When investing in SGB, there is no risk of theft or storage, unlike physical gold, where there are many risks and concerns about safekeeping.
- Bonds have less risk because the government of India backs them. This makes it a safe and secure way to invest in gold investors.
- You can redeem the bond at the prevailing market price at maturity or earlier.
- While the interest earned by purchasing SGB is taxable, the Indian government has exempted capital gains from taxation.
- Investors must pay production costs not recouped upon sale when they purchase real gold, particularly jewellery. In contrast, there is no such expense associated with purchasing SGB.