We Indians have a long history of gold investment. For adequate portfolio diversification, financial advisers also recommend putting a portion of your investible capital in gold. Due to their appealing qualities, Indians have started investing in Sovereign Gold Bonds (SGB) rather than real gold in recent years.

Who can invest in SGB?

Anyone can invest in SGB – any individual, HUF, Trust (whether charitable or not), or University that is a resident under the Foreign Exchange Management Act. As a guardian, you can invest on behalf of a minor. To invest in bonds, one must have a PAN number.

Although an NRI cannot participate in SGBs directly, he or she can keep bonds received on behalf of a local investor until maturity. Banks, stock holding corporations, post offices, and recognised stock exchanges are all places where these bonds can be purchased.

SGB applications must be submitted for a minimum of 1 gramme and multiples of 1 gramme, subject to the maximum allowable limit for the investor’s category. In each financial year, an individual or a HUF may invest up to 4 kilogrammes in SGB. Other qualifying entities have the option of investing up to 20 kgs each year.

These restrictions apply to investments made through initial subscriptions as well as transactions made on stock markets. SGBs can be held individually or jointly, however, the allowable maximum will only apply to the first holder. Any of the bonds subscribed or acquired might be nominated by the investors.

SGB’s tenure and early redemption

The Sovereign Gold Bonds have an 8-year term, however, the plan permits investors to choose for early redemption at any point after the first 5 years of interest payments have been made. These bonds are available in both physical and Demat forms. You can transfer your holdings from Demat to physical at any moment in the future, or vice versa. The investor is allowed to sell these bonds on Stock Markets even during the original 5-year lock-in term if he needs money or sees price appreciation.

Price of issue and price of redemption

The Sovereign Gold Bond Scheme is denominated in a nominal price per gramme, which is calculated using the Indian Bullion and Jewellers Association Limited’s (IBJA) average price of 0.999 pure gold for the previous three days of the week before the week of issue. The issue price has been set at Rs 4,807/- per gramme for the issue that began on July 12th, 2021 and ends on July 16th, 2021. There will be more publications every month until September 2021, as promised. Investors who apply online and pay via a digital channel receive Rs. 50/- per gramme discount. These bonds’ redemption prices will be calculated in the same way as the issue price.

At the time of redemption, there is no actual delivery of gold. SGGB investors earn an annual interest rate of 2.50 percent on the issue price of the bonds, which is paid every six months.

On Sovereign Gold Bond Scheme, how are interest and capital gains taxed?

In the hands of investors, Sovereign Gold Bonds interest is entirely taxable, while profits received on redemption are totally free from capital gains tax. Please note that the capital gains exemption applies exclusively to bonds redeemed with the RBI and not to profits realised on stock market sales. If you own SGB sold on stock exchanges for more than 36 months, you can benefit from indexation for calculating long-term capital gains.

Alternatively, you can pay a 10% tax on unindexed profits on SGB sales through your stockbroker if the investment has been held for longer than 36 months. Profits on bonds traded on stock exchanges before 36 months are considered short term and taxed at the relevant slab rate. Alternatively, you can pay a 10% tax on unindexed profits on SGB sales through your stockbroker if the investment has been held for longer than 36 months. Profits on bonds traded on stock exchanges before 36 months are considered short term and taxed at the relevant slab rate.

Should you put money into SGB?

Because gold functions as an inflation hedge and provides liquidity during times of political and economic uncertainty, it should be a part of everyone’s portfolio. In India, gold is given at all possible social events, particularly at the time of sons and daughters’ marriages. As a result, one should continue to invest in gold in order to have enough gold on hand at the time of the family’s marriage. You should invest in these bonds to protect yourself against inflation and diversify your portfolio since your investment in gold through SGB gives you income and the capital gains at redemption are tax-free.