Context:
The price for Sovereign Gold Bonds (SGB) 2023–24 Series IV has been fixed at Rs 6,263 per gram, as announced by the Reserve Bank.
Sovereign Gold Bond (SGB) Scheme
It is a government initiative launched in 2015, that allows individuals to invest in gold bonds. These bonds are denominated in grams of gold and are linked to the prevailing market price of gold. The scheme offers investors an alternative to owning physical gold, providing a convenient and secure way to invest in gold.
Items | Details |
| Issuance: | It is issued by the Reserve Bank of India on behalf of the Government of India. |
| Eligibility: | SGBs are available for sale to resident individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions. |
| Tenor: | The tenor of SGBs is eight years, with an option of premature redemption after the fifth year. |
| Minimum size: | The minimum permissible investment in SGBs is one gram of gold. |
| Maximum limit: | Individuals can subscribe up to 4 kg, HUFs up to 4 kg, and trusts and similar entities up to 20 kg per fiscal year (April-March), as notified by the Government from time to time. |
| Joint holder: | In case of joint holding, the investment limit of 4 kg applies to the first applicant only. |
| Issue price: | The price of SGBs is fixed in Indian Rupees based on the simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited. |
| Interest rate: | Investors receive a fixed rate of interest of 2.50% per annum, payable semi-annually on the nominal value (face value or stated value). |
| Collateral: | SGBs can be used as collateral for loans. |
| Tax treatment: | The interest on SGBs is taxable as per the provisions of the Income Tax Act, 1961. However, the capital gains tax arising on the redemption of SGBs by individuals is exempted. |
| Tradability: | SGBs are eligible for trading. |
| SLR eligibility: | SGBs obtained by banks through the pledge process are considered part of their Statutory Liquidity Ratio requirements. |
| Sales channel: | SGBs are sold through Scheduled Commercial banks (except Small Finance Banks, Payment Banks, and Regional Rural Banks), Stock Holding Corporation of India Limited, Clearing Corporation of India Limited, designated post offices, and National Stock Exchange of India Limited and Bombay Stock Exchange Limited, either directly or through agents. |
Benefits of Sovereign Gold Bond Schemes:
- Elimination of Storage Risk and Cost: Investors are relieved of the risk and cost associated with physical storage of gold, as SGBs are held in electronic form.
- Tax Benefits: Exempt from Capital Gains Tax: Investors are exempt from capital gains tax if they hold the bonds until maturity.
- Indexation Benefits: Long-term capital gains upon transfer of bonds enjoy indexation benefits.
- Hassle-free Ownership: Investors enjoy ownership of gold without the hassle of physical possession, mitigating risks and storage expenses.
- Tradability: SGBs are tradable on stock exchanges within a fortnight of issuance, providing liquidity and flexibility to investors.
- Transferability: SGBs can be transferred through the execution of an Instrument of Transfer in accordance with the provisions of the Government Securities Act.
Limitations of Sovereign Gold Bond
- Susceptible to Currency Fluctuation: Any fluctuation in currency values tends to impact the price at which gold is traded. As a country’s import expenses rise significantly, the overall investment level of that country falls, consequently affecting the demand for gold and its prices.
- Loss of capital: Since the value of the bond is closely tied to the price of gold in international markets, investing in SGB may result in a capital loss if the gold price decreases to the level at which you initially bought the bond.
- Inversely related to the Stock Market: Gold prices exhibit an inverse correlation with the stock market. When stock market returns rise, gold prices tend to decrease, and vice versa.