Sovereign Gold Bonds open for subscription: All you need to know
HDFC Bank customers can invest in government-issued sovereign gold bonds via NetBanking and their DEMAT account and avail Rs. 50/- discount per gram.
HDFC Bank customers can invest in government-issued Sovereign Gold Bonds, which are open for subscription from March 1, 2021, to March 5, 2021. The issue price has been fixed at Rs 4,662 per gram at a fixed interest rate of 2.5%. Applicants can enjoy a discount of Rs 50 per gram on digital applications with the issue price of Rs 4612 per gram. This is in accordance with the decision of Government of India in consultation with RBI to offer a discount of Rs 50 per gram to investors applying for sovereign gold bonds online and making payments digitally.
What are gold bonds?
Issued by the Reserve Bank of India (RBI) on behalf of the government, Sovereign Gold Bonds are government securities denominated in grams of gold. Therefore, this paper form of gold serves as a substitute for holding physical gold.
The ‘paper gold’ or gold bonds are sold in multiples of one gram of gold, which means the minimum investment is the price determined for one gram of the precious metal. In other words, the minimum permissible investment is one gram of gold.
Investors have to pay the issue price in cash when purchasing the bonds, which are redeemed in cash on maturity. The gold bonds can be traded on the stock exchange, and earnings do not attract TDS. They can also be used as collateral for loans. Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961(43 of 1961). Capital gain tax arising on redemption of SGBs to an individual has been exempted on maturity.
Moreover, there is no capital gains tax on maturity for individual investors.
Current series details
Sovereign gold bonds were launched in 2015, with the current series being the 12th tranche for FY 2020-21. The subscription is open to resident individuals and Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions, subject to investment limits.
Those eligible can purchase the gold bonds from designated post offices, the Bombay Stock Exchange, the National Stock Exchange, and the Stock Holding Corporation, apart from designated banks like HDFC Bank.
Individuals and HUFs can buy up to a maximum limit of 4 kg in one financial year, while the cap for trusts and similar entities is pegged at 20 kg. If applications are made for a joint holding, the investment limit of 4 kg will be applied to the first applicant.
The tenure of the bond is for a period of eight years with an exit option after the fifth year; a bond holder can exercise this option on the next interest payment date.
Please Note: Only individuals can apply for Sovereign Gold Bonds through Netbanking.
Advantage of gold bonds
A sovereign gold bond is a safe investment as it is issued by the Government of India, thus carrying a sovereign guarantee. It is also a simple investment to make because one can do it online, ensuring a lower rate. Alongside, several factors make gold bonds a superior alternative to physical gold.
First, Sovereign Gold Bonds can be used as collaterals for loans.
Second, its prices are linked to the price of 999 purity (24k) gold published by the India Bullion and Jewellers Association (IBJA). Since a gold bond is liquid, investors can sell it easily in the secondary market when gold prices rise.
Third, the investor is paid a fixed interest rate (2.5% for the ongoing series), similar to what a fixed deposit in a bank earns. The fixed interest earned is independent the capital appreciation of Gold Bonds.
Fourth, the holding cost of the gold bond, given its paper form, is negligible when compared to the security expense of owning physical gold as jewellery, bars, coins, or ingots.
Fifth, individual investors do not have to pay capital gains tax or TDS at maturity.
Why invest in gold bonds now?
Gold prices are on a downward spiral. For instance, when the current series was announced on 29 January 2021, RBI had fixed the issue price at Rs 4912 per gram, in keeping with the prevailing gold rates. However, over the next 30 days, prices dropped nearly 6.3%, leading to the readjustment at Rs 4662 per gram.
So, buying now means you will be getting a gold equivalent at lower rates, and you can wait for prices to rise again. As G Chokkalingam, founder and chief investment officer at Equinomics Research, says: “The long-term prospects of gold still remain intact.”
How to invest in gold bonds?
HDFC Bank customers can invest in government-issued sovereign gold bonds via NetBanking or Demat account and avail Rs50/- discount per gram.
Log into your NetBanking and click on the ‘Offers’ tab to get started! You can even visit your local HDFC Bank Branch.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.