Last Updated on December 18, 2023 by BFSLTeam BFSLTeam
Investing in gold is an age-old practice in Indian households. However, buying physical gold introduces several safety concerns and additional expenses. To address this concern, the Reserve Bank of India introduced and mandated sovereign gold bonds or SGB.
Every once in a while, the RBI holds primary issuance of SGBs for the public on behalf of the Indian Government. The Series 3 issuance of sovereign gold bonds for 2023 will remain open between the 18th to 22nd December. Its final price is Rs. 6199, whereas for the customers who apply online it is Rs. 6149 (Rs. 50 discount)
If you are planning to grow your portfolio with an investment in gold, this blog is for you. Scroll below to learn everything about SGBs and their features and benefits.
Table of Content
What Are Sovereign Gold Bonds?
Sovereign Gold Bonds are certificates that are issued on grams of gold that allow individuals to invest in gold without worrying about the safekeeping of the real asset. These are bonds denominated in grams of gold issued by the RBI. SGBs are a secured investment tool that allows investors to invest in the yellow metal and get fixed interest payments.
There is a particular investment window which is pre-determined for the subscription process of SGBs. During this a person can invest and become the holder of a sovereign gold bond scheme. This is a one-week investment window which RBI announces in a press release every 2-3 months.
Recently, the government has announced that it will launch the upcoming issue of sovereign gold bonds in 2023 in two tranches. The first one (Series III) will open from 18th – 22nd December 2023 while the second (Series IV) will open from 12th-16th February 2024.
Features of Sovereign Gold Bonds
Before planning to invest in SGB, take a look at the features mentioned below:
- Pre-defined Tenure
Sovereign gold bond schemes for 2023-24 come with a fixed tenure of 8 years. You can opt for premature withdrawal only after completion of 5th year. As investors, you can also sell or trade with these gold bonds in the secondary market at gold’s market price.
- Easy to Resell
You can choose to resell your sovereign gold bonds in 2023 in the secondary market after 14 days from your subscription date. Prices of these bonds at the time of trading depend on the ongoing market rate of gold. Your sovereign gold bond will be stored in your demat account as a digital certificate which you can trade.
- Interest Payments
Unlike other forms of gold investment, SGBs allow you to get additional income in the form of interest. These bonds currently pay interest at a 2.5% p.a. rate.
- Subscription Quantity
You must place your subscription as grams of gold from sovereign gold bonds. Your minimum investment must be equivalent to 1 gram of gold’s price. Whereas, your maximum investment amount must be equivalent to the price of 4 kg of gold.
How Do SGB Work?
SGB are digitised certificates whose value depends on physical assets. With SGB, you can invest in gold without owning it physically. The Government of India along with RBI issues these bonds and their prices move along with the prices of actual gold.
If you buy one sovereign gold bond certificate, it means you have invested in 1 gram of gold. Each SGB certificate denotes 1 gram of gold. This bond’s value fluctuates along with the market prices of gold.
The maturity period for SGB is 8 years, you can opt for premature withdrawal only after the lock-in period which is 5 years. Investors benefit from a fixed interest payment and capital appreciation of the market value of gold.
How to Buy Sovereign Gold Bonds 2023?
You can buy sovereign gold bonds 2023 online from any commercial bank that authorises these bonds. Consider visiting their website and following the steps below to invest in sovereign gold bonds.
Step 1: Login to Bajaj Financial Securities account App/Website
Step 2: Go to Homepage
Step 3: Tap on Smart Investment
Step 4: Select SGB and apply
Benefits of Investing in Sovereign Gold Bonds
The following points will take you through the advantages of sovereign gold bonds in 2023.
- Additional Income
With sovereign gold bond investments, you can get guaranteed returns annually at a 2.50% p.a. interest rate. This is a fixed interest rate and the interest is credited semi-annually to your bank account.
- Loan Collateral
Some banks accept the digitised or demat form of SGB certificates as collateral for secured loans. After setting the LTV ratio as per the current gold rate, banks will consider this as a gold loan
- Tradable
You can sell the SGB under your possession in stock exchanges within specific dates.
- Enjoy Indexation Benefits
By holding SGB for the long term, you can enjoy long-term capital gains as these can bring you indexation benefits.
- Ensures Safe Investment in Gold
When investing in an SGB, you do not have to worry about the safekeeping of a physical asset. These are digitised certificates and there is no risk of theft or loss of these assets once you possess the certificate.
Risks Involved with Sovereign Gold Bonds
Besides the above advantages, you must also keep the following risk factors before planning your investment with SGBs.
- SGBs follow the market prices of gold, this exposes their values to drop if the market value of physical gold falls drastically.
- The presence of a lock-in period reduces investors’ liquidity as it does not allow them to withdraw their SGB before 5 years.
- This investment is fit for investors with a long-term investment horizon. Investors with short-term investment goals must refrain from investing in SGB.
Taxation on Sovereign Gold Bonds
One can classify the returns from SGB into two categories: capital gains and interest. The latter is taxed from investors under ‘income from other sources’ head with tax rates depending on an investor’s applicable tax slab. However, you do not need to pay tax on long-term capital gains if you are holding SGB till maturity. You must also pay tax for your earnings on the resale of these bonds in the secondary market.
Summary
To conclude, returns from sovereign gold bonds are comparatively higher than options like gold ETFs and physical gold. As a digital asset, it is a safer investment option than a physical commodity. These factors make sovereign gold bonds in 2023 popular among investors looking to diversify their portfolios.
Frequently Asked Questions
You can redeem your SGB partially after the 5th year of subscription. You can also hold it for 8 years and redeem it after maturity.
Sovereign gold bonds offer a safe and convenient alternative to physical gold investments in the form of digitised certificates. These can be good investment options for long-term investors to hedge against inflation and diversify their portfolios.
The current interest rate of SGB is 2.50% per annum and the interest is paid semi-annually.
