Sovereign Gold Bonds - Alternate of physical Gold

Sovereign Gold Bonds

Sovereign Gold Bonds are Government securities denominated in multiples of gram(s) of gold. They are substitute for investment in physical gold. 

To buy the bond, one should has to pay the issue price to an authorised SEBI (Stock Exchange Bord of India) Broker. On redemption, cash is deposited into the investor's registered bank account. These Bonds are issued by the Reserve Bank of India on behalf of the Government of India and are traded on stock exchange.

Some important things about Sovereign Gold Bond 

1. In gold bonds, you get interest of 2.5% per annum that will be deposited directly into your bank account every half yearly 
2. You do not get interest in any other investment method of gold 
3. If you want to invest, you have to buy at least one unit (one unit equal to 1 gram)
4. You can buy gold bonds equal to a maximum of 4 Kgs for individual, 4 Kgs for HUF (Hindu undivided family) and 20 Kgs for trust and similar entities per financial year (April-March) 
5. Gold bonds are issued by the Government of India. So you don't have to worry about your money. Gold bonds are guaranteed by the Government of India
6. Gold bonds mature after 8 years. After 8 years, the money will be returned to you according to the value of the gold at that time 
7. Although gold bonds are matured in 8 years, you can take your money by returning your bonds at the stipulated time in the fifth, sixth and seventh year. You can also take a gold loan by pledging a gold bond. Gold bonds will also be listed on the stock exchange
8. From there you can buy or sell gold bonds

Lets understand with the help of an example 

Suppose you bought 100 units of gold bonds. That means you bought 100 grams of gold, at the time of purchase, the price of gold was running at say Rs 4000 per gram (Rs 40,000 tola or per 10 grams), you invested Rs 4 lakh in total. 

You will get interest of 4 lakh X 2.5% = Rs 10,000 every year. Note that you will get interest of Rs 5,000 every 6 months.

After 8 years, the money will be returned to you according to the value of the gold at that time. Suppose the value of gold at that time is weighed Rs 45,000. In this case, you will get 100X4,500 = 4.5 lakh rupees for 100 gram of gold. If the value of gold is Rs 35,000, then you will get Rs 3.5 lakh. 

Note: You have to bear the risk of fluctuating price of gold

Benefits Of Sovereign Gold Bond 

1. Safest: Zero risk of handling physical gold
2. Earn Interest: 2.50% assured interest per annum on the issue price
3. Tax Benefits: No TDS applicable on interest and Capital gain tax exempt on redemption
4. Assurance of Purity: Gold bond prices are linked to price of gold of 999 purity (24 carat) published by IBJA.
5. Sovereign Guarantee: Both on redemption amount and on the interest
6. Easy Exit Option: The tenure of the bond is for 8 years with an option to redeem from 5th year onwards on the date on which interest is payable

How to buy Sovereign Gold Bond? 

Government of India issues Sovereign Gold Bonds from time to time. You can buy gold bonds with the help of your bank or with the help of your broker. You can also apply online. If you want you can buy or sell sovereign gold bonds on the stock exchange.