The series-I of the Sovereign Gold Bond (SGB) scheme for 2020-21 opened for subscription on Monday. The issue price for the same has been fixed at Rs 4,639 per gram of the yellow metal. Online subscribers can secure these bonds at a discount of Rs 50 per gram.
This subscription will close on April 24 and certificate of the bonds will be issued on April 28, according to Reserve Bank of India (RBI).
Given below are key things to know about Sovereign Gold Bond (SGB) scheme:
What is SGB and how it works
SGB is a certificate scheme in which the RBI issues bonds on behalf of Government of India. It comprises government securities denominated in gold wherein investors are required to pay the issue price in cash. The bonds are redeemed in cash on maturity.
The Sovereign Gold Bond (SGB) is restricted for sale to resident individuals, HUFs (Hindu Undivided Families), trusts, universities and charitable institutions.
How it is sold
These bonds are sold through scheduled commercial banks (except small finance banks and payment banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd, according to RBI.
It bears interest at the rate of 2.5 percent per annum on the amount of the initial investment.
The bonds are denominated in the multiples of one gram of gold.
Tenor and exit options
The tenor of the bond is for a period of eight years with exit option after fifth year to be exercised on the interest payment dates.
The minimum permissible amount allowed for investment in SGB is one gram of gold. The maximum limit of the subscription is four kilograms for individuals and HUFs, and 20 kilograms for trusts and similar entities per fiscal year (April-March), which is notified by the government from time to time. In case of joint holding, the investment limit of 4 kilograms is applied to the first applicant only.
Bonds are tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
The interest on gold bonds are taxable as per the provision of Income Tax Act. The capital gains tax arising on redemption of SGB to an individual is, however, exempted. The indexation benefits are provided to long term capital gains arising to any person on transfer of bond.
Should one invest?
According to Ravindra Rao, VP- Head Commodity Research at Kotak Securities, SGB is a good bet when it comes to gold investment. "It pays interest of 2.5 percent along with the price appreciation which no other gold investment offers,” he explains.