Akshaya Tritiya: With 2.5% interest, should you opt for Sovereign Gold Bonds?

A 10-gram gold in 22 carat in Mumbai is priced at Rs 30,900 on the occasion of Akshaya Tritiya. The most minimum gram would be in 1 in 22 carat, which is available at Rs 3,090 currently. Because the cost of gold is still higher, not many can afford it. As an alternative, the government launched the Sovereign Gold Bond scheme back in 2015 under gold monetisation plan. On intervals, RBI issues various tranches of SGB along with interest rates. The real charm of this scheme is that one can opt for the issue and earn 2.5% interest rates per annum. This rate is fixed for every bank. Tenure is also fixed. A citizen can buy minimum 1 gram of gold and can subscribe for maximum 4kg for individual and HUFs, while the highest limit is set at 20 kg for trusts and entities. If you are preparing for SGBs, then here’s what you must know!

On its website HDFC Bank highlights why invest in SGBs. These are:

• Safest way to buy and store gold
• Earn 2.5% assured interest per annum on the investment
• Asset appreciation opportunity plus assured interest
• Issued by Government of India. Tradeable on Stock Exchange
• No TDS applicable
• Can be used as collateral for Loans
• Eligible for conversion into Demat form
• Enjoy the ease of investing through NetBanking and HDFC Bank Demat Account
• Indexation benefit if bond is transferred before maturity
• No Capital Gains Tax on redemption

According to ICICI Bank, the capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond. Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

Here’s a list of features of SGBs, as per SBI. 

Denomination - The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.

Tenor - The tenor of the Bond will be for a period of 8 years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates.

Joint holder - In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.

Issue price - RBI will issue Press Release stating issue price of the Bond before new Issue. Price of Bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited (IBJA) for the last 3 business days of the week preceding the subscription period.

Payment Option - Payment for the Bonds will be through cash payment (up to a maximum of Rs. 20,000/-) or demand draft or cheque or electronic banking.

Issuance form - The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into Demat form.

Redemption price - The redemption price will be in Indian Rupees based on simple average of closing price of gold of 999 purity of previous 3 working days published by IBJA.

Collateral - Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time. The lien on the bond shall be marked in the depository by the authorised banks.

KYC - Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.