We know that the Government of India issue Sovereign Gold Bonds every year. The gold bond denomination is in grams of gold. You can say it is a kind of substitute for holding physical gold. Reserve Bank of India issue the bond on behalf of the Govt. Let’s get some basic ideas about Sovereign Gold Bond Scheme.
Common FAQ about Sovereign Gold Bond Scheme
Sovereign Gold Bond Scheme or Sovereign Gold Bonds are Government securities. Basically, it is denominated in grams of gold. So it is a substitute for investment in physical gold. In order to buy the bond, an investor has to pay the issue price in the form of cash to an authorized SEBI Broker.
As I have said Reserve Bank India issue this bond on behalf of the Government of India. And the Bonds are restricted only for sale to resident individuals, HUFs, Trusts, Universities, and Charitable Institutions. It is denominated in multiples of gram(s) of gold and those with a basic unit of 1 gram.
As the bonds are connected to the price of gold, investors have to pay the bond price in the form of cash. In a single Fiscal year, the Sovereign Gold Bond Scheme would accept a minimum investment of 2 gm gold and a maximum investment of 500 gm per person. And, the bonds will pay a yearly interest of 2.75% to investors.
Basically, the tenor of the bond is 8 years. But in case of early encashment or redemption, the bond is allowed after the fifth year from the issue date on coupon payment dates. The bond is tradable on Exchanges if it is held in Demat form. Besides this, it can also be transferred to any other eligible investor.
I took this above chart from the official NSE site. There a comparison among physical gold, gold ETF and sovereign gold bond. Here, as you can see Sovereign gold bond scheme return is higher than the actual return on gold with high safety. Besides this, the purity of gold is also high enough.
Key Features of the Scheme
- The Govt bond carries interest at the fixed rate of 2.50% per annum on the nominal value.
- Investors’ accounts credited semi-annually. And on maturity, the last interest will be payable along with the principal amount.
- Here, Investors will earn fixed returns. This return is related to gold prices.
- The bond carries the sovereign guarantee both on redemption amount as well as on the interest.
- The minimum investment is 1 gram. And, Maximum investment is 4 Kgs for individual, 4 Kgs for HUF along with 20 Kgs for trust.
- The bonds are available in DEMAT and paper form.
- Investors can trade the bonds on the National Stock Exchange of India Limited.
- Issuance happens through trading members of NSE.
Who ought to apply in Zerodha Sovereign Gold Bond Scheme?
Any individual who means to put into physical gold (coins, bars, biscuits) or gold ETF’s.
Why invest in Zerodha Sovereign Gold Bond Scheme?
So, get Gold’s market returns + Fixed 2.75% every year on a contributed investment. Ensured by the Government of India.
- The government is paying an altered 2.5% every year return on contributed money.
- That is correct, right, a settled return like putting into an FD.
- This plan is being drifted to urge individuals to move far from purchasing physical gold, which is one of the fundamental explanations behind India’s enlarging current record deficiency.
- Since it is in Demat structure, no stress theft.
- At the point when purchasing gold ETF’s, there is an administration expense. No such expenses when putting into Zerodha sovereign gold bond scheme.
- These gold bonds will begin trading on the exchanges soon. So like offering stocks, you can choose to sell it at whatever point you need, on the off chance that you don’t choose to hang on till the end of the bond maturity.
Ensured by the government of India.
How to invest in the Sovereign Gold Bonds Scheme?
The issue dates are still not reported. It should be somewhere around the second and third weeks of July. So this is like a stock IPO.
On the off chance that you are a Zerodha customer, you can visit here: https://www.stockmaniacs.net/recommends/zerodha/zerodha-gold-bond to apply. The cash deducts from your trading account 1 or 2 days before the close of the issue.
Where else you can buy Sovereign Gold Bond
The RBI issues Sovereign Gold Bonds on behalf of the Government of India. As we have already discussed, the SGBs carry a guarantee of 2.25% interest per annum to be paid annually. The Government of India gives this guarantee against the sovereign gold bond schemes. Therefore buyers of SGBs get this assurance of interest from GOI. People buy gold for mainly two reasons, ornaments and as an investment. Indians have the custom to buy and gift gold ornaments on auspicious occasions and marriages etc. Huge amounts of gold change hands in India for such reasons. In addition, people buy gold as investments. Over long years gold gives good returns. The SGBs are eight-year schemes for investing in gold as the certificate format. The minimum lockin period is 5 years after which these certificates can be traded in the open market until the validity ends.
RBI also issues the SGBs through registered banks. There are Sovereign Gold Bond SBI, Sovereign Gold Bond Bank of Baroda, Sovereign Gold Bond Union Bank, Sovereign Gold Bond HDFC, Sovereign Gold Bond Axis Bank and Sovereign Gold Bond from many other banks. All of these banks allow buying SGBs when RBI opens the issues. The issues remain open for specific periods. All these happen under the RBI guideline.
Sovereign Gold Bond Scheme Dates
As we already know the Sovereign Gold Bond buying window opens for a short time about the dates. RBI notifies all concerned about the dates each year. Let’s have a look.
Sovereign Gold Bond dates 2020
Sovereign Gold Bond dates 2021
Also, from the pictures above you can see there is a list in the archives. You can look for any previous SGB issues from the past in the archives.
Sovereign Gold Bond Price History
The RBI issues Sovereign Gold Bond schemes as per the Gold price in the international market. Therefore, the issue prices vary according to the gold price. Hence the Sovereign Gold Bond issue price in the year 2015-2016 will be far lower than the issue price of SGB in the current year. The Sovereign Gold Bond scheme price history explains that. You can find the Sovereign Gold Bond rate today from the website of Zerodha.
The price of Sovereign Gold Bond RBI and the price of Sovereign Gold Bond NSE is the same. Also same is the price of Sovereign Gold Bond Zerodha. Actually, the price of the gold bond of a particular issue is the same everywhere. You can find Sovereign Gold Bond price 20 from NSE or Zerodha or where you bought the gold bonds from. Similarly, you can find gold bond prices of all year the previous years. After the unlock period of a minimum of 5 years is over, you can find the rates of those bonds in the market.
How to purchase Sovereign Gold Bonds?
We already know that RBI announces the issue dates of these bonds. The gold bonds are available for purchase from all the approved institutions like banks, brokers etc. after the bonds remain available. So, this is how to buy Sovereign Gold Bonds. And to the answer to how to sell Sovereign Gold Bonds, first, you need to hold the SGBs for a minimum of 5 years after you buy them. This is the minimum lock-in period. The Sovereign Gold Bonds remain valid for eight years. Therefore, you can sell Sovereign Gold Bonds in the open market in the 5th, 6th, 7th year. After the eighth year, the SGBs can not be traded anymore because govt buys them back.
Buy Sovereign Gold Bonds online
If you buy the gold bonds online, you get a Rs 50 discount per gram on the purchase price. Suppose you are buying SGB equivalent to 100 gms online, the total discount will be Rs 5000 on the purchase price. After you buy the SGB, you will receive the online link. The link is for the Sovereign Gold Bonds certificate download.
Sovereign Gold Bonds benefits
There are many benefits of SGB investment. Some of the benefits are already mentioned above in the key features of the scheme. Therefore I will not repeat those again. But to summarize the benefits, a buyer gets a fixed rate of interest on the invested capital River and above the Sovereign Gold Bonds returns. As it is in certificate format, you don’t need to pay for the security of gold or any other overhead expense.
How to trade Sovereign Gold Bonds?
From 5 years onwards you can trade the certificates. Hence you can trade your SGBs only for three years. In addition, you can buy Sovereign Gold Bonds from the secondary market anytime. These are the benefits of investing in the Sovereign Gold Bonds.
Sovereign Gold Bonds returns
The SGB returns calculator solves the problem. The calculator calculates the returns. The SGB returns vary frequently. Therefore Sovereign Gold Bonds calculator calculates the return based on the issues and the current rate.
Some important questions on the Sovereign Gold Bond scheme
Is Sovereign Gold Bond tax-free?
The TDS or tax deduction at source is not applicable for Sovereign Gold Bonds. Though the bond subscriber will primarily comply with the Indian tax laws. In addition, the bond subscriber will get indexation benefits for long term capital gains (LTCG) arising dut to transfers the bond.
Sovereign Gold Bonds vs Gold ETF
Both of these instruments are for investments in gold. Investors who want to invest for medium-term, choose the Sovereign Gold Bonds. Because an investor has to invest for a minimum period of 5 years before he can liquidate the Sovereign Gold Bonds. The Sovereign Gold Bonds are also used as good hedging instruments against other investments. Also, another added advantage is the 2.50% return on investment per annum from Sovereign Gold Bonds. And of course, you may get a high ROI from gold price over a long time.
But Gold ETFs are easily tradeable. You can buy it today and sell the ETF instantly after you receive that to your demat account. Therefore we can say that for investors who want to invest in gold for a very short term, Gold ETFs are most suitable for them. Gold ETFs are also used for hedging like the SGBs.
Sovereign Gold Bonds vs Fixed Deposit
As we have already discussed the ins and outs of the advantages of Sovereign Gold Bond schemes, we need to focus much on them. But the fixed deposits are different. Starting from a minimum of 180 days, you can invest in fixed deposits for any tenure you wish. You will get a return after the end of maturity at a fixed rate. The disadvantage of a fixed deposit is the return is limited. But in Sovereign Gold Bonds can give you big returns over time. Within the last few years, we have seen almost 250% price appreciation in gold. That is the advantage. Also, you get 2.50% interest per annum on your investment from the government of India.
So, we can say that this is the most effective way of investment. You can use these bonds for hedging purposes also. And there is no need to go anywhere to get these schemes. One can get it from your home through your Zerodha Demat account. So without any delay book the upcoming scheme.