New Delhi, November 2: Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. The government in November 2015, under Gold Monetisation Scheme, launched this. This form of investment is quite interesting as they are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.
But now you must be scratching your head how should you go about it so don’t worry let us quickly go through all the details related to this scheme.
If you are a first timer then you must be thinking of the duration of these bonds. According to the SBI’s website the tenor of the SGBs will be for a period of 8 years with exit options in 5th, 6th and 7th year, to be exercised on the interest payment dates.
If you want to invest in this scheme the minimum permissible limit is of 1 gram gold and maximum permissible limit of 4 kg for individual, 4 kg for Hindu Undivided family (HUF), 20 kg for trusts and similar entities per fiscal year.
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption.
If you are thinking about the risk factor so in this scheme there may be a risk of capital loss if the market price of gold reduces with the passage of time. However, the investor does not lose in terms of the units of gold which he has paid for.
Persons residing in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
The Bonds will fetch you an interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal. Bonds are sold through offices or branches of nationalised banks, scheduled private banks, scheduled foreign banks, designated post offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents.