In the previous article, we have covered the concept of digital gold. In this article, we will see what is sovereign gold bond.
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What is Sovereign Gold Bond?
Sovereign Gold Bonds are a type of securities(bonds) that is issued by RBI on behalf of the Government of India. It is a substitute for physical gold where investors can buy bonds at the price of the current market rate of gold. It is issued only 5 or 6 times a year which means you can buy these Bonds only at a specific time. The website for checking dates is given below.
This bond has a lock-in period of 8 years. Premature redemption is available after 5 years which means you can sell these bonds back to RBI. However, if you store it in digital(Demat) form you can sell(trade) it in the market. The lock-in period can be extended maximum of up to 3 years. These bonds have a criterion of a minimum of 1 gram and a maximum of 4 kgs per person(per fiscal year).
Advantages of investing in Sovereign Gold Bond
1.)Interest on Return
You get an interest of 2.5% per annum on these bonds. The interest calculated here is simple (only on the investment amount).
2.)No GST or STT
You do not need to pay any kind of GST or STT (Securities Transaction Tax) at the time of purchasing these bonds.
2.)No Capital Gains Tax
If you hold these bonds till maturity (8 years or more than that) then no capital gains tax is applicable on these bonds.
3.)Collateral for Loan
You can take loans from banks or any NBFCs by giving this bond as collateral.
4.)Can be stored in Demat Form
You can store it in Demat form if needed, by providing the Demat id in the application form.
6.)Tradable
By holding it in digital form, you can sell these bonds even before 5 years in the market. It can just function as a stock where you can trade these bonds if any unexpected incident occurs.
Disadvantages of Sovereign Gold Bond
1.)Tax on Interest
Though SGBs provide a good interest, the interest incurred during the financial year is applicable. The interest applicable depends upon your tax bracket.
2.)Tax on Returns if redeemed before 8 years
If you sell these bonds before 8 years (in the market or back to RBI), you will have to pay long term capital gains tax which is 20%on returns+4%cess.
3.)Lock-In Period
These bonds have a lock-in period of 8 years. You can also sell it prematurely back to RBI after 5 years.
How to invest in Sovereign Gold Bond?
There are 4 ways for purchasing SGBs. They are:
1.)Commercial Banks
You can buy SGBs from any commercial bank. To know the dates of buying SGBs from banks, keep an eye on the notifications panel of your respective bank's portal or visit the nearest bank branch.
2.)Post Offices
This is also one of the ways of buying SGBs, for more updates you can contact your nearest post office.
3.)Stock Holding Corporation of India Limited(SHCIL)
You can also purchase SGBs from the official website of SHCIL.
4.)Stock Broker
This is the cheapest way of getting SGBs because people(in the market) sell them at low prices as compared to RBI. So, it can be considered as the most preferable way of buying SGBs because you can buy them at any time and it is slightly cheaper than the market rate.
Hope you enjoyed the blog.
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