The Sovereign Gold Bond scheme (SGB) is a government initiative that offers you an opportunity to invest in gold without the need to purchase physical gold. The Government of India launched the scheme in November 2015 to reduce the demand for physical gold and shift it towards financial savings. The scheme is designed to encourage investment in gold by offering a secure, efficient, and cost-effective alternative to purchasing physical gold.
The bonds are denominated in grams of gold and are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The bonds have a tenure of eight years, with an option to exit after the fifth year. The minimum investment in the scheme is one gram of gold, and the maximum investment limit is four kilograms for individuals, and twenty kilograms for trusts and similar entities.
Features of the Sovereign Gold Bond scheme
Here are some of the salient features of the Sovereign Gold Bond scheme:
- Issuance: The Reserve Bank of India issues the bonds in tranches on behalf of the Government of India.
- Denomination: The bonds are denominated in grams of gold. This comes with a minimum investment of one gram and a maximum investment of four kilograms for individuals.
- Interest: The bonds carry a fixed rate of interest of 2.50% per annum on the nominal value of the investment.
- Tenure: The tenure of the bonds is eight years, with an option to exit after the fifth year.
- Liquidity: The bonds are tradable on stock exchanges within a specified period of the issuance date.
- Taxation: The interest earned on the bonds is taxable as per the Income Tax Act, 1961. However, the capital gains arising from the redemption of the bonds are exempted from tax if held till maturity.
- Collateral: These bonds can be used as collateral for loans from banks, financial institutions, and Non-Banking Financial Companies.
Advantages of Sovereign Gold Bond Scheme
The Sovereign Gold Bond Scheme offers the following advantages:
- Secure investment: The scheme offers a secure investment option with the assurance of the Government of India.
- Fixed interest: The scheme offers a fixed rate of interest, which is not available with other loans.
- Capital appreciation: The scheme offers capital appreciation on the investment made, based on the market value of gold.
- Flexibility: The scheme offers flexibility in terms of investment amount. You can invest in multiples of one gram, up to a maximum of four kilograms.
- Low risk: The Sovereign Gold Bond Scheme is a low-risk investment option. This is because the gold prices are relatively stable compared to other asset classes.
- Easy liquidity: The bonds can be traded on stock exchanges, making them easily liquidatable.
- Lower capital gains tax: The capital gains arising from the redemption of the bonds are exempted from tax if held till maturity. Even if the bonds are sold before maturity, the capital gains tax is lower compared to physical gold.
How can you invest in Sovereign Gold Bond scheme?
The process of investing in the Sovereign Gold Bond scheme is simple and can be done online. You just need your PAN card and basic KYC documents to invest in the scheme. The payment can be made through cash, cheque, or digital payment modes.
While buying Sovereign Gold Bonds is great way to invest in gold and earn returns, it is essential to understand the connection between gold bonds and loans. These bonds are not only an excellent way to invest but also a great source for obtaining instant funds. You can also pledge these bonds as collateral against loans to cover your financial needs.
How to redeem sovereign gold bond?
Redeeming Sovereign Gold Bonds (SGB) under the Sovereign Gold Bond Scheme can be done either on maturity or before maturity, following specific procedures:
Redemption on Maturity:
- Maturity period: The bonds mature in 8 years.
- Redemption price: The redemption price is calculated based on the simple average of the closing price of gold (999 purity) for the previous 3 business days from the repayment date, as published by the India Bullion and Jewelers Association Limited (IBJA).
- Credit of funds: Both interest and redemption proceeds will be credited to the bank account provided at the time of purchasing the bond.
Redemption Before Maturity:
- Early redemption: Allowed after the fifth year from the date of issue on coupon payment dates.
- Procedure: Investors must approach the concerned branch thirty days before the coupon payment date for premature redemption. The proceeds will be credited to the bank account provided initially.
- Tradability: Bonds held in Demat form can be traded on exchanges and transferred to any eligible investor.
This gold bond scheme provides flexibility and security for investors, ensuring they can redeem their investments conveniently.
Series of the sovereign gold bond scheme
The Sovereign Gold Bond Scheme for the financial year 2023-24 is issued in four series, each with a specific subscription period and issuance date:
1. 2023-24 Series I:
Subscription period: June 19 – June 23, 2023
Date of issuance: June 27, 2023
2. 2023-24 Series II:
Subscription period: September 11 – September 15, 2023
Date of issuance: September 20, 2023
3. 2023-24 Series III:
Subscription period: December 18 – December 22, 2023
Date of issuance: December 28, 2023
4. 2023-24 Series IV:
Subscription period: February 12 – February 16, 2024
Date of issuance: February 21, 2024
Each series offers a specific window during which investors can subscribe to the bonds, with the issuance date following shortly after the subscription period. These series provide multiple opportunities throughout the year for investors to participate in the Sovereign Gold Bond Scheme.
Eligibility criteria for sovereign gold bond scheme
The Sovereign Gold Bond Scheme (SGB) offers an excellent opportunity for individuals to invest in gold without the risks associated with physical storage. The eligibility criteria for the SGB gold bond are straightforward, making it accessible to a wide range of investors.
Eligibility:
- Residents: Indian residents, including individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions, are eligible to invest in the gold bond scheme.
- Minors: Minors can also invest in the SGB gold bond through a guardian.
Loan Against SGB:
Investors can avail themselves of a loan against SGB as these bonds are considered secure collateral by many banks and financial institutions. This feature enhances the liquidity of the investment, allowing investors to meet financial needs without selling their bonds.
Benefits
- The bonds have an 8-year tenure with an exit option after the fifth year.
- They offer a fixed interest rate of 2.5% per annum, paid semi-annually.
- The redemption price is based on the average closing price of gold of 999 purity for the last three business days before maturity, published by the India Bullion and Jewellers Association Limited (IBJA).
By investing in the Sovereign Gold Bond Scheme, you can benefit from gold's price appreciation and earn interest, while also having the flexibility to secure a loan against sovereign gold bonds if needed. This makes the gold bond scheme an attractive and versatile investment option.
Documents required for availing sovereign gold bond scheme
To invest in the Sovereign Gold Bond Scheme (SGB), certain documents are required to ensure the authenticity and eligibility of the investor. Here is a comprehensive list of the documents needed:
1. Identity proof: Valid identity proof is necessary to establish the identity of the investor. Acceptable documents include:
- Aadhaar Card
- PAN Card
- Passport
- Voter ID
- Driving License
2. Address proof: To verify the residential address of the investor, the following documents are acceptable:
- Aadhaar Card
- Passport
- Utility Bills (electricity, water, gas)
- Bank Statement
3. PAN card: A PAN card is mandatory for subscribing to the SGB gold bond.
4. KYC documents: Know Your Customer (KYC) documents must be submitted to the issuing bank or financial institution. This usually includes identity proof and address proof.
5. Application form: Complete the prescribed application form available at designated banks, post offices, or through online portals.
Investors can also avail themselves of a loan against SGB, enhancing the liquidity of their investment. When applying for a loan against sovereign gold bonds, additional documents like the original bond certificate and loan application form may be required.
By ensuring you have all necessary documents, you can smoothly invest in the gold bond scheme and enjoy the benefits of the sovereign gold bond scheme, including the option to secure a loan against your bonds.
Here is how you can apply for a loan against your bonds:
Step 1: Select a lender
Once you have confirmed that your bonds are eligible for a loan, the next step is to select a lender. You can approach banks, Non-Banking Financial Companies (NBFCs), or other financial institutions for a loan against your bonds. Research the various lenders, compare the interest rates, and choose the one that best fits your needs.
Step 2: Submit the required documents
The next step is to submit the required documents to the lender. The documents required for a loan against bonds typically include:
- Proof of identity (such as PAN card, Aadhaar Card, passport, etc.)
- Proof of address (such as a utility bill, bank statement, etc.)
- Proof of ownership of the bonds
- Demat statement or physical bond certificates
Step 3: Evaluation of bonds
Once you have submitted the documents, the lender will evaluate the value of your bonds. The value of the bonds determines the amount of loan that you can get. Typically, you can get a loan of up to 80% of the value of your bonds.
Step 4: Loan disbursement
After the evaluation, the lender will disburse the loan amount to your bank account. The loan amount can be used for any purpose, such as paying off debts, financing a new investment, or funding a major expense.
Step 5: Repayment
Finally, you will need to repay the loan amount along with the interest to the lender. The repayment terms and interest rates vary from lender to lender. It is important to read the terms and conditions of the loan agreement carefully before signing it.
In conclusion, obtaining a loan against Sovereign Gold Bonds is a convenient method to access funds without selling your investments. By following the steps outlined in this article, you can secure a loan against your bonds efficiently and swiftly. Be sure to conduct thorough research, compare lenders, and read the loan agreement carefully before signing.
Additionally, if you need to manage urgent expenses, consider exploring the gold loan provided by Bajaj Finance. Gold loans offer a quick and hassle-free way to raise funds by using your gold assets as collateral. Bajaj Finance provides competitive interest rates, flexible repayment options, and minimal documentation requirements, making it an excellent choice for those in need of immediate financial assistance. Whether for personal or business needs, a gold loan can be a reliable solution to address your financial requirements.
