Advantages of Sovereign Gold Bonds
Understand this, the word ‘Sovereign’ means possessing unlimited powers without any interference. The concept of sovereign gold bonds (SGB) may seem intimidating, but it's not what you think. In simple terms, a Sovereign Gold Bond (SGB) is a government security that is labeled in grams of gold and most importantly issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
Imagine you want to invest in gold as it yields high returns but you are skeptical. Buying it from the authentic jeweler, storing it and worrying about its purity may be a risk. With Sovereign Gold Bonds you do not need to worry about these aspects. You can simply buy an SGB, as an investment in gold without having to go to the jewelers.
To further simplify, imagine you buy an SGB worth 10 grams of gold as per the existing rate(Rs 6263 *10). The government promises to pay you interest (varies from bank to bank) on this amount every six months. After 8 years, you can sell this bond back to the government on the current market value of 10 grams of gold (may be Rs6263 or more/less). This will help you benefit from the increase in gold prices and earn interest, all without dealing with physical gold. In short, SGBs is an alternative to physical gold, providing returns same as gold prices while paying interest on the investment made.
Things to Know Before Buying SGB
To buy a Sovereign Gold Bond (SGB), you need to meet a few basic requirements:
Eligibility Criteria
You ought to be an Indian resident. This includes individuals, Hindu Undivided Families (HUFs), trusts, Universities and Charitable Institutions.
Identification:
You need a valid PAN Card as this is your unique tax identification number in India.
Investment Amount:
You can do a minimum investment of one gram of gold or may invest up to 4 Kgs per year for individuals and HUFs. For trusts, universities and charitable institutions 20 Kgs are allowed.
Bonus tip: If you buy and apply the application for SGB online, you get to enjoy a discount of Rs 50 per gram.
Time Period:
The total lock-in period of the bond is eight years. However, you can enjoy the benefits after the fifth, sixth and seventh years of the bond time period as well as process the interest of disbursement days.
Advantages of a Sovereign Gold Bond (SGB):
You might be wondering about the pros of owning an SGB. An SGB is not only an attractive investment option but is also safe and secure. When you buy physical gold, you need to worry about its safety as it can be stolen, lost, or damaged. With SGBs, you don’t have to worry about these issues because you’re investing in gold digitally as issued by the government of India.
You Earn An Interest Rate On SGB -
Wow, really? Yes, that is true! SGB pays you interest where you can enjoy the benefits of extra income and profit, unlike the physical gold. Currently the rate of interest on SGB is 2.5% per year which is paid every six months. Let suppose there is any increase in the gold prices, you will then enjoy the benefits of it simply by holding the bonds.So for you, it is a win-win!
No Extra Money Involved For Making Charges -
You heard it right! Spending money on making charges is always a painful thought. Sovereign Gold Bonds lets you enjoy the process without any involvement of making or hidden charges that makes your journey into investment fair and easy.
You Don't Need To Worry About It’s Purity-
Imagine bumping into a conversation with family and friends and finding out that the gold you bought from your jeweler was of cheap quality or fake? But with Sovereign Gold Bonds you will be paying for the purest quality. The value of the bonds is linked to the price of 999 purity gold, ensuring that you get the highest quality.
It Is Easy and Convenient
Buying and storing physical gold can be difficult and clumsy. With SGBs, the process is straightforward. You can easily buy these gold bonds through banks, post offices and stock exchanges. They are reserved in your demat account or is provided as a credible certificate so you don’t need a locker for it.
The lifesaver -Tax Benefits
The bonds you hold until maturity provides you with tax benefits on their capital gains. It is basically the profit you make, when you sell them after they are matured. Please note, you will have to pay taxes on the interest earned for sure (obvious reason - it is an income). Hence, this definitely makes a mark that distinguishes between buying a solid gold and buying a sovereign gold bond.
Liquidity
Despite having a lock-in period of eight years, an SGB can be redeemed after five years without any penalties. It is flexible from the fifth year onwards. Additionally, you may even trade them on stock exchanges, if you wish to sell them before the maturity period.
No Storage Costs
With SGB, there are no storage costs linked, since they are held digitally or as a certificate, making free from applying for locker facilities.
Transparent Pricing
The prices of SGB is directly proportional to the market price of gold, which also ensures transparency. This is unlike buying physical gold where prices keeps on varying depending on the place where you have purchased it from.
Encourages Savings
Investing in SGBs promotes reasonable saving. Since these bonds have a fixed tenure, they promote long-term investment, which can be beneficial for future financial planning.
You Are Contributing To The National Economy
By investing in SGBs, you’re also contributing to the country’s economy. The money raised through these bonds are used for various developmental activities and plans helping the government and promoting the nation's growth.
Invest as less as 1 Gm
The minimum investment in SGBs is just one gram of gold, making it attainable for new and small investors. This allows one to invest as per their capacity and without having the need to invest a huge sum of money.
How to Buy?
You can buy the SGB through National banks in India, Post offices, Stock Holding Corporation of India Limited (SHCIL) and stock exchanges like NSE and BSE. Besides, you may easily apply online or offline. Online applications also offer discounts. After your application is processed, you receive a Holding Certificate as proof of your investment.
Remember, you can uphold a joint account as well, which can provide additional security and ease of management. Investment for the minors can be done by their guardians ensuring their interests are protected and safe. Investing in Sovereign Gold Bonds is designed to be safe and secure for everyone. So what are you waiting for?
