We Indians have a long history of gold investment. For optimal portfolio diversification, financial advisors also recommend putting a portion of your investible cash in gold. Due to their attractive qualities, Indians have started investing in Sovereign Gold Bonds (SGB) rather than actual gold in recent years.
Basic characteristics of SGBs and why they are a good investment.
Who can invest in SGBs ?
SGB can be invested in by any individual, HUF, Trust (whether charitable or not), or University that is a resident under the Foreign Exchange Management Act. As a guardian, you can invest on behalf of a minor. To invest in bonds, one must have a PAN number. Although an NRI cannot participate in SGBs directly, he or she can retain bonds received on behalf of a local investor until maturity. Banks, stock holding corporations, post offices, and recognized stock exchanges are all places where these bonds can be purchased.
SGB applications must be submitted for a minimum of 1 gram and multiples of 1 gram, subject to the maximum permitted limit for the investor’s category. In each financial year, an individual or a HUF may invest up to 4 kilograms in SGB. Other qualified entities have the option of investing up to 20 rgs each year.
SGBs can be held individually or jointly, however, the permitted maximum will only apply to the first holder.
SGB’s tenure and early redemption
The SGBs have an 8-year term, however, the plan permits investors to choose for early redemption at any point after the first 5 years of interest payments have been made. These bonds are available in both physical and Demat forms. You can transfer your holdings from Demat to physical at any moment in the future, or vice versa. The investor is allowed to sell these bonds on stock markets even during the original 5-year lock-in term if he needs money or sees price appreciation.
Price of issuance and price of redemption
The SGBs are denominated in a nominal price per gram, which is calculated using the Indian Bullion and Jewellers Association Limited’s (IBJA) average price of 0.999 pure gold for the previous three days of the week before the week of issue. The issue price is fixed at Rs 4,807/- per gram for the issue that opened on July 12th, 2021, and closes on July 16th, 2021.
Investors who apply online and pay via digital means receive Rs. 50/- per gram discount. These bonds’ redemption prices will be calculated in the same way as the issue price. At the time of redemption, there is no actual delivery of gold.
Is it a good idea to put your money into SGB?
As gold works as an inflation hedge and provides liquidity during times of political and economic upheaval, it should be a part of everyone’s portfolio. Everyone should invest in these bonds to protect yourself against inflation and diversify your portfolio since your investment in gold through SGB gives you income and the capital gains at redemption are tax-free.
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