Government opens fifth series of Sovereign Gold Bond scheme, here's all you need to know about it

The fifth series of Sovereign Gold Bonds 2018-19 will open from January 14 to 18 at an issue price of Rs 3,214 per gram.

Published: 13th January 2019 03:01 PM  |   Last Updated: 14th January 2019 11:00 AM   |  A+A-

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India is the second largest consumer of gold after China. It imports an average of 700 to 900 tonnes of gold each year, according to the World Gold Council. When it comes to the yellow metal, Indians buy it in the form of jewellery as well as for investment purposes.

In an effort to cut down on gold imports and lower the current account deficit, the Indian government launched the sovereign gold bond scheme in November 2015.

The fifth series of Sovereign Gold Bonds (SGB) 2018-19 will open from January 14 to 18 at an issue price of Rs 3,214 per gram. Do you want to invest in paper gold? Here are a few things you need to know about the scheme. 

1) What are SGBs? Who is the issuer?

SGBs are also known as paper gold and are substitutes for physical gold. They are government securities denominated in grams of gold. You will have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bonds are issued by the RBI on behalf of the government of India. 

You can buy the bonds from banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and stock exchanges - National Stock Exchange of India Limited and Bombay Stock Exchange Limited. Payment can be made through cash (up to Rs 20,000), cheques, demand draft or electronic fund transfer.

You can buy a minimum of 1 gram of gold under the SGB scheme. The maximum limit for individuals and HUF is 4 kg, while for trusts or similar entities, it is 20 kg. In case of joint holding, the limit applies to the first applicant.

2) Who are eligible to apply for SGBs?

Investors such as individuals, Hindu Undivided Family (HUF), trusts, universities and charitable institutions are eligible to invest in SGBs. Joint holdings of these bonds are also allowed. 

Even minors can invest in paper gold. An application on behalf of the minor has to be submitted by his/her guardian. The application form will be provided by the issuer or it can be downloaded from the RBI website.

3) Why choose SGBs over physical gold? What are the benefits?

The risks and costs of storage are eliminated -- you need not worry about the safety of your gold. The bonds are held in the books of the RBI or in demat form, hence ruling out the risk of losing your asset to theft, robbery etc. You won't have to pay making charges or for wastage etc since it is not a physical form of gold. 

Investors are also assured of the market value of gold at the time of maturity and regular interest payment on their investments. Unlike investment in physical gold, the investors get a fixed interest rate of 2.5 per cent per annum payable semi-annually and the last interest will be payable on the date of maturity along with the original investment. 

These bonds can also be used as collateral for loans from banks, financial institutions and non-banking financial companies.

4) What is the tenure of the SGB?

The tenure of the bond is eight years. Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond. 

If you want to encash/redeem it early, you can do so only after the fifth year from the date of issue. You also have an option to trade the bonds on exchanges, if held in demat form or transfer/gift to any other eligible investor.

5) How can you apply? 

An investor can either go to the issuer directly and buy the bonds at the rate of Rs 3,214 per gram or can apply online through the website of the listed commercial banks. For those who apply online, the government has decided to give a discount of Rs 50 per gram, lowering the issue price to Rs 3,164 per gram.

6) Are SGBs taxable?

Interest on the bonds will be taxable. However, you don't have to pay capital gains tax as they have been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on the transfer of the bonds. Tax deducted at source (TDS) is not applicable on the bonds.

7) What will happen in the event of the death of an investor?

The nominee/nominees to the bond, who can prove their legal heir status, may approach the respective issuer with their claim. The above provisions are applicable even in the case of a deceased minor investor. In the absence of nomination, the executors or administrators of the deceased (for someone whose funds are managed by a trust) can make a claim.

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