This really is paper gold
Sovereign gold bonds are issued by the govt.
- Sovereign gold bond is a substitute for holding physical gold.
- The bonds are issued by the Reserve Bank of India (RBI) on behalf of the government and is a bond denominated in gold.
- The government issues such bonds in tranches at a fixed price that investors can buy through banks, post offices and also in the secondary markets through the stock exchange platform.
- These bonds are backed by a sovereign guarantee and can also be held in demat form.
- Further, they are priced as per the underlying spot gold prices.
- Hence, investors who want to invest in gold can buy the bonds without worrying about safekeeping of physical gold along with locker charges, making charges or purity issues.
- Plus, these bonds offer an interest at the rate of 2.5% per annum on the principal investment amount.
- While the interest on the bonds are taxable, the capital gains at the time of redemption are exempt from tax.
- These bonds can also be used as collateral for availing loans from banks and NBFCs.
- SGB has a fixed tenure of eight years, though early redemption is allowed after the fifth year from issuance.
- Since the bonds are listed on the exchange, these can be transferred to other investors as well.
- The bonds are priced in rupees based on the simple average of closing price of gold of 999 purity.
- At the time of redemption, cash equivalent to the number of units multiplied by the then prevailing price would be credited to the bank account of the investor.
- The latest tranche, which closed for subscription last week, was priced at ₹4,590 per gram.
- Those who apply online were eligible for a discount of ₹50 per gram.
- Capital loss is a risk since the bond prices would reflect any change in gold prices.
- If gold prices fall, the principal investment would fall proportionately.