Why are Sovereign Gold Bonds a Secure and Convenient Investment Avenue?

Sovereign Gold Bonds (SGBs) have gained popularity as a reliable investment option for individuals looking to diversify their portfolios and invest in non-physical gold. These government-guaranteed gold bonds, issued by the Reserve Bank of India (RBI) on behalf of the Government of India, offer investors a convenient and secure way to participate in the gold market. The recently opened Sovereign Gold Bond Scheme 2023-24 - Series I allows investors to subscribe to these bonds at attractive terms.

Subscription Period and Price

The Sovereign Gold Bond Scheme 2023-24 - Series I subscription opened on Monday, June 19, and will close on June 23. The settlement date for this series is scheduled for June 27. During this subscription period, investors can apply for SGBs and benefit from the potential appreciation in the price of gold.

The issue price for the SGBs is set at Rs 5,926 per gram of gold. However, investors who choose to subscribe online can avail a discount of Rs 50 per gram, reducing the effective issue price to Rs 5,876. This digital mode discount incentivizes investors to opt for online subscriptions and supports the government's initiative to promote a digital economy.

Government Guarantee and Security

The nominal value of the SGBs is based on the simple average closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd (IBJA) for the last three working days of the week preceding the subscription period. In the case of the Sovereign Gold Bond Scheme 2023-24 - Series I, the closing prices of gold on June 14, June 15, and June 16, 2023, will be considered for determining the nominal value.

One of the key advantages of investing in SGBs is the government guarantee. These bonds are issued by the RBI on behalf of the Government of India, providing investors with high security. The government's guarantee ensures the repayment of the investment amount along with the interest accrued over the bond's tenure.

Convenience and Liquidity

SGBs offer convenience and liquidity to investors. Unlike physical gold, which requires storage and incurs associated costs, SGBs can be held electronically or in the books of the RBI. This eliminates the need for physical storage and safeguards against the risk of loss or theft. Additionally, SGBs are listed on stock exchanges, allowing investors to trade them like any other financial instrument, enhancing their liquidity and providing flexibility.

Apart from the potential appreciation in the price of gold, SGBs offer investors an additional benefit in the form of annual interest. The interest rate on SGBs is fixed at 2.5 percent per annum, payable semi-annually. This feature distinguishes SGBs from physical gold and gold funds, as they provide a regular income stream to investors. The interest income is credited directly to the investor's bank account, offering convenience and ease of access.

SGBs offer attractive tax benefits to investors. If held until maturity, the gains made on SGBs are tax-free. Even if sold before maturity, investors receive indexation benefits, which help in reducing their tax liability. This tax-efficient structure makes SGBs an appealing investment avenue for those seeking exposure to gold.

Tenure and Redemption

Sovereign Gold Bonds (SGBs) have a tenure of eight years, offering investors a long-term investment option to participate in the gold market. However, after the completion of the fifth year from the date of issue, investors have the flexibility to opt for early redemption on coupon payment dates. This feature provides liquidity to investors who may need to exit their investment before the original maturity period.

Investors who wish to redeem their SGBs prematurely can approach the concerned bank, SHCIL offices, post office, or agent at least thirty days before the coupon payment date. It's important to note that the request for premature redemption must be made at least one day before the coupon payment date. The proceeds from the redemption will be credited to the customer's bank account, which was provided at the time of applying for the bond.

Redemption of SGBs is done in Indian Rupees, and the redemption price is based on the simple average of the closing price of gold of 999 purity for the previous three business days from the date of repayment. These prices are published by the India Bullion and Jewelers Association Limited (IBJA), ensuring transparency and fairness in determining the redemption value.

Transferability and Trading

SGBs offer transferability and trading options, allowing investors to manage their holdings according to their needs and market conditions. Investors have the ability to transfer their SGB holdings to eligible individuals as per the provisions of the Government Securities Act, 2006. This feature provides flexibility for investors who may want to transfer their bonds to family members, friends, or other eligible investors.

Furthermore, SGBs held in dematerialized (demat) form can be traded on stock exchanges. The RBI notifies the specific date from which the bonds can be traded. It's important to note that only SGBs held in demat form with depositories are eligible for trading on stock exchanges. This tradability feature enhances the liquidity of SGBs, allowing investors to buy or sell their holdings based on market conditions and their investment objectives.