Should You Invest in Sovereign Gold Bonds?


What is Sovereign Gold Bond?

A sovereign gold bond (SGB) is a security issued by the Government of India. It is suitable for investors who are looking to invest in gold, but do not want the inconvenience of holding physical gold.

The non-corrosive nature of gold coupled with its limited supply makes it a favourite for investors across the world. In India, a huge amount of gold is kept with families in the form of jewellery, coins, and bullion. Gold is mostly bought and collected during weddings, as there is a long-standing tradition of gifting gold ornaments at the time of the wedding.

Irrespective of the intended usage, holding gold in the physical form comes with its share of inconvenience and risk. If one is storing gold in the house, there is always a risk of theft or burglary. For safe storage of gold, one needs to rent a bank safety locker, which entails an additional storage cost.


Sovereign Gold Bonds: A Better Way

A better way of investing in gold is through Sovereign Gold Bonds (SGBs). The Government of India introduced the Sovereign Gold Bond Scheme in 2015 as an alternative to investment in physical gold. These bonds are government securities and provide returns linked with gold.

The following are the features of SGBs:

a. SGBs are denominated in multiples of grams of gold.

b. Individuals, HUFs, trusts, universities, and charitable institutions can invest in SGBs.

c. The minimum investment per year is one gram of gold, while the maximum investment is four kilograms for individuals and 20 kilograms for trusts and other such entities.

d. The quantity of gold that is bought in SGBs is protected and the value will move as per the price of gold.

e. An interest of 2.5% per annum is paid on the originally invested amount and is credited directly to the account of the investor on a bi-annual basis.

f. The maturity period is 8 years with an option of redemption after 5 years at the time of interest payment.

g. On redemption, at the time of maturity, the capital gains on SGBs are exempted from capital gains tax for individuals.


Advantages of Investing in SGBs

SGBs offer a better alternative to buying gold in physical form.

· They eliminate the risks and cost of storage associated with physical gold.

· As an investor in SGBs, one is assured of the market value of gold along with periodic interest.

· Issues like making charges, wastage, and purity of the purchased gold are also taken care of and one is assured of the market value of 999 purity gold.

· The bonds are held in a dematerialised form in the books of the RBI, so safety is also assured.


How to Invest in SGB?

Investment in SGBs can be done through Federal Bank by visiting the bank physically or by logging in to the internet banking Fednet on the federal bank website. Alternatively, the application form can be downloaded from the website and deposited at one of the branches of the Federal Bank.

One may visit the Federal Bank website to explore the various services offered to customers.