Sovereign Gold Bond Scheme 2023-24: A Comprehensive Guide for Investor... Sovereign Gold Bond Scheme 2023-24: A Comprehensive Guide for Investors Read more

Summary

The Sovereign Gold Bond Scheme 2023-24, initiated by the Government of India in collaboration with the Reserve Bank of India, offers a unique opportunity for investors to delve into gold investments without the physical holding of gold. This innovative scheme not only contributes to the nation's economic stability but also provides numerous benefits to the investors.

Basics of Gold 

Gold has always held a special place in both hearts and investment portfolios, yet owning physical gold presents challenges. Sovereign Gold Bonds (SGBs), introduced by the Reserve Bank of India (RBI), have transformed this landscape. In this article, we will delve into the realm of Sovereign Gold Bonds, unraveling the process and exploring the advantages.

Understanding Sovereign Gold Bonds: Sovereign Gold Bonds are financial instruments issued by the RBI on behalf of the Government of India. Unlike physical gold, these bonds are denominated in grams, offering investors an alternative way to possess gold without the burdens of safekeeping.

The Process:

1. Subscription Period: RBI issues SGBs in tranches throughout the year, each with a fixed price in rupees based on prevailing gold prices. Subscription windows are open for a few days, and investors can apply through authorized banks, demat accounts, or selected post offices.
2. Application and Payment: Investors apply through banks, post offices, or online platforms during the subscription period. The application requires details like PAN and KYC information, with payment accepted through various modes.
3. Issuance of Bonds: After the subscription period closes, the bonds are issued to investors. The bonds are credited to the investor’s demat account, eliminating the need for physical certificates. A Certificate of Holding can be obtained if needed.
4. Tenure: A minimum of 8 years, with an early exit option after 5 years.

Benefits of Sovereign Gold Bonds:

1. Interest Income: SGBs provide an additional benefit in the form of annual interest, payable semi-annually and credited directly to the investor’s bank account. Returns include guaranteed fixed interest every 6 months (2.50% per annum) and potential gold price appreciation at maturity.
2. No Making Charges or Storage Costs: Unlike physical gold, SGBs incur no making charges or storage costs, offering the benefits of gold ownership without associated expenses.
3. Tax Efficiency: While interest is taxable, capital gains on redemption are exempt from capital gains tax if held until maturity, making SGBs a tax-efficient gold investment.

Latest Update about SGB: The latest tranche (2023-24 Series III) closed on December 22, 2023, at a fixed price of ₹6,199 per gram. The next tranche (2023-24 Series IV) is anticipated on February 12 – February 16, 2024

Key Features and Details

Subscription and Issuance

• Tranches: The 2023-24 Series III and IV will be available for subscription from December 18 to December 22, 2023, and February 12 to February 16, 2024, respectively, with issuance dates on December 28, 2023, and February 21, 2024​​.
• Sales Channels: Available through Scheduled Commercial banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognized stock exchanges like the National Stock Exchange of India Limited and Bombay Stock Exchange Limited​​.

Investment Terms

• Eligibility: Open to resident individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions​​.
• Denomination and Size: Denominated in multiples of grams of gold with a basic unit of one gram. The minimum investment is one gram of gold​​.
• Maximum Limit: The subscription limit is set at 4 Kg for individuals and HUFs, and 20 Kg for trusts and similar entities per fiscal year​​.
• Joint Holdings: In cases of joint holding, the investment limit of 4 Kg will be applied to the first applicant only​​.
• Tenure: The bonds have a tenure of eight years, with an option for premature redemption after the fifth year on the date on which interest is payable​​.

Pricing and Payment

• Issue Price: Determined based on the simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited (IBJA) for the last three working days of the week preceding the subscription period. There's a discount of ₹50 per gram for online subscriptions paid through digital mode​​.
• Payment Options: Payments can be made via cash (up to ₹20,000), demand draft, cheque, or electronic banking​​.

Redemption and Collateral

• Redemption Price: Calculated based on the simple average of the closing price of gold of 999 purity, published by IBJA Ltd. of the previous three working days​​.
• Collateral Use: The bonds can be used as collateral for loans, with the loan-to-value (LTV) ratio applicable to ordinary gold loans​​.

Additional Features

• Interest Rate: Investors earn a fixed interest rate of 2.50% per annum, payable semi-annually on the nominal value​​.
• KYC Norms: The Know-Your-Customer (KYC) documentation required is similar to that for purchasing physical gold​​.
• Tax Treatment: Interest on SGBs is taxable as per the Income Tax Act, 1961. However, capital gains tax arising on redemption to an individual is exempted, with indexation benefits for long-term capital gains on transfer​​.
• Tradability and SLR Eligibility: These bonds are eligible for trading and can be counted towards the Statutory Liquidity Ratio (SLR) when acquired by banks through lien, hypothecation, or pledge​​​​.

Commission

• Distribution Commission: A commission of one percent of the total subscription is paid to the distributing agencies, with at least 50 percent shared with agents or sub-agents​​.

Conclusion: Sovereign Gold Bonds present a convenient and efficient way to invest in gold, blending the security of government-backed bonds with the appeal of precious metal. Understanding the process and benefits empowers investors to make informed decisions and diversify portfolios. Conduct thorough research, comprehend risks, and consult financial advisors if needed.

The Sovereign Gold Bond Scheme 2023-24 presents a robust and versatile investment avenue for individuals and institutions looking to invest in gold without the risks and hassles associated with physical gold. With its strategic features like regular income through interest, tax benefits, and ease of trading, it stands as a promising option for diversified investment portfolios.