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Sovereign Gold Bonds

Reasons To Invest In Sovereign Gold Bonds

Indians have an admiration for gold that cannot be measured. But investing in physical gold has various risks with rigidity in liquidity. Sovereign Gold Bond comes to the rescue for investors with love for gold. By investing in gold bonds, you capture the opportunity to earn a fixed return over price fluctuation. So, sovereign gold bonds provide a superior alternative over physical gold.

What are Sovereign Gold Bonds?

Sovereign Gold Bonds were introduced by the Government of India as an alternative for physical gold. These are certificates mandated by RBI and denominated in grams of gold. It ensures transparency and also mirrors the returns of the asset. Gold bonds are considered a secure investment for two reasons. Firstly, it is government security, and secondly, returns on these bonds are in line with returns on gold.

One can get gold bonds in multiples of 1 gram which is the minimum investment. The maximum limit for a gold bond is 4 kgs per investor in a financial year. For investing in a gold bond, All you have to do is go to an authorized agent by SEBI. The RBI announces the bonds calendar and gives a window of one week within which an individual can subscribe.

Who should buy SGBs?

Sovereign Gold Bonds are a perfect investment for investors with a low-risk appetite. Also, people that have a charm for gold should consider buying gold bonds. Gold bonds do not have any added cost such as making charges or GST as compared to physical gold. If you are someone who hates taking the risk that comes with holding gold should invest in SGBs. These are in Demat form and with zero chances of being stolen.

Features of Sovereign Gold Bonds

Price: The gold bond price is calculated by using a simple average of the closing price of the previous three days prior to the issue.

Tenure: Gold bonds have a fixed term of 8 years. One can exit before maturity after the completion of 5 years.

Interest: Sovereign Gold Bonds pay a fixed interest rate that is 2.50% per annum. This is over the gold price return and is paid half-yearly on the nominal value.

Resale: Gold bonds can be traded after fourteen days from the date of initial subscription in the secondary market. The prices depend upon the prevailing prices of gold.

Benefits of Investing in Gold Bonds

Reduced Risk:  Sovereign Gold Bonds are issued by the RBI for the central government. Thus, it is one of the safest investments with the government’s support. There are zero chances of any default in repayments. So, low-risk investors looking for gold allocation have a lot to gain from gold bonds.

Improvement in Capital: The capital gain on gold bonds are tax free on maturity making it an attractive investment option.

Hassle-Free: Physical gold requires safe storage that can prove to be stressful for many people. In comparison, gold bonds come in the form of a certificate issued to the investor as proof of investment. One can choose to keep these certificates in digital form for added security in their Demat account.

Loan Facility:  Banks accept Sovereign Gold bonds as collateral while giving loans. Thus, gold bonds’ market value can be taken as a loan for more than 75% from any scheduled financial institution as per RBI’s guidelines. Therefore, availing of a loan facility becomes more comfortable with gold bonds.

Therefore, Sovereign Gold Bonds make for a good investment scheme for every investor. Risk-averse people should definitely invest in gold bonds. These can also act as a hedge against the market when influential companies perform in a substandard manner.


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