What is a Sovereign Gold Bond?

Sovereign Gold Bond is a scheme that allows you to hold gold bonds instead of physical gold, offered by the Reserve Bank of India on the behalf of the Government of India. The scheme offers denominations in grams of gold and the lowest denomination is 1 gram. The issue for the scheme is done in tranches which are notified by a public notice before the issue opens.

What are the features of the Sovereign Gold Bond?

Eligibility:

In order to be eligible for buying the Sovereign Gold Bond, the investor has to be a resident Indian entity. The entity could be an individual, or a resident individual on behalf of a minor, a hindu undivided family, or a trust, University of charitable institution. A Pan card issued by the income tax department is a mandatory document for the investor.

Denomination:

The denomination for the issue of the bond is 1 gram of gold and multiples thereof.

Minimum Investment:

The minimum investment that an entity can make is 1 gram.

Maximum Limit:

The maximum amount of investment in the Sovereign Gold Bond that can be made by the investor is 4 Kg/year for individuals and Hindu Undivided Family, and 20 kg for trusts and other charitable institutions.

Rate of Interest:

A 2.5% p.a interest is offered on the amount invested.The interest amount is paid into the bank account of the entity. The last amount of interest is paid with the capital payout after the lock in period is over.

Lock in Period:

There is a lock in period of 8 years for the investment made into the scheme. There is a provision of partial withdrawal from the 5th year onwards. The exit is to be executed on the interest or coupon payment date.

Redemption:

The redemption price is fixed in INR and is calculated based on the average price of Gold of 999 purity in the previous three days from the date of redemption. The price of gold is published by the India Bullion and Jewellers Association Limited.

Why should you invest in a Sovereign Gold Bond?

The investment into the Sovereign Gold Bond can be a great investment opportunity due to the following reasons:

Price of Gold has always been the hedge against the volatility of Equity and rising inflation. Hence, they are a safe investment option that can give considerable wealth accumulation.

Owning physical gold comes with its inherent risk of safe keeping. Sovereign Gold Bond makes the ownership of gold hassle free.

The scheme comes with tax benefits, as the capital gains tax has been exempted on redemption after full tenure. The scheme offers indexation benefits to investors who get capital gains when they sell the bonds in the secondary market.

The bonds are transferable as well as tradable in the secondary markets.