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What is Sovereign Gold Bond Scheme?

Gold is not just a commodity but an important asset class that can serve as an effective portfolio diversifier.

In times of macroeconomic uncertainty, rising inflation, geopolitical tensions, a pandemic, and the fallout of all these factors on economic growth, gold usually proves to be a safe haven, a hedge, and a store of value.

That said, approach gold the smart way by investing in Gold Exchange Traded Funds (Gold ETFs), Gold Saving Funds, and Sovereign Gold Bonds (SGBs).

Here let's understand Sovereign Gold Bonds in detail...

What are SGBs?

Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI) on behalf of the government. The government introduced SGBs in October 2015 to provide investors with an alternative to physical gold.

SGBs are issued in denominations of 1 gram of gold and in multiples thereof. They have a tenor of 8 years with an exit option at the end of the 5th year to be exercised on the interest payment date. In other words, investments in SGB are subject to a 5-year lock-in.

SGBs are tradable on the stock exchanges, offering you sufficient liquidity.

Who is eligible to invest in Sovereign Gold Bonds?

Any person resident in India (as defined under Foreign Exchange Management Act, 1999) is eligible to invest in SGBs.

Typically, the list includes:

  • Individuals
  • Hindu Undivided Families (HUFs)
  • Trusts
  • Universities
  • Charitable institutions.

All applications in SGBs are subject to compliance with KYC norms. In the case of individuals, joint holding is allowed, plus a minor may also invest through his/her guardian.

During the tenor, if there is a change in residential status from resident to non-resident, then you may continue to hold SGBs until early redemption (at the end of the 5th year) or till maturity (8 years).

What is the minimum and maximum you can invest in Sovereign Gold Bonds?

The minimum investment allowed is 1 gram.

The maximum investment limit is a subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year.

Note that, in the case of joint holdings, the limits shall apply to the first applicant.

Tax Implications of Investing in Sovereign Gold Bonds

The interest earned on SGBs is taxable (under ‘Income from Other Sources') as per the provisions of the Income-tax Act, 1961 (43 of 1961) and will be taxed as per your income-tax slab. Tax Deduction at Source (TDS) does not apply to the interest earned.

Speaking about the capital gains, SGBs that are sold at maturity (i.e. at the end of the tenor of 8 years) are exempt from capital gain tax.

However, if SGBs are sold before maturity, that is, at the end of the lock-in period of 5 years, Long Term Capital Gain (LTCG) tax @ 20% (with indexation benefit) will be levied, plus the applicable surcharge and 4% cess.

Happy Investing!


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