Do you know that most middle-income Indian households buy 56% of India’s gold? For a long time, gold has been a symbol of prosperity. As much as this precious metal is coveted, it involves the risk of theft and the added responsibility of keeping it safe. Despite these factors, it has always been a lucrative investment option for Indians.
Acknowledging these issues, the Union Government proposed the issuance of Sovereign Gold Bonds through the Reserve Bank of India. They were officially introduced in November 2015, offering lucrative interest rates and tax exemptions on capital gains. RBI brings multiple tranches of SGBs annually. You can apply for an open issue through your bank, post office, online platforms, and stock exchanges. Here are its benefits:
- Tax benefits
The interest received from your investment in the Sovereign Gold Bond scheme is taxed per your existing tax slab. However, the capital gains component on redemption is tax-free. If you transfer before the maturity period of eight years, long-term capital gains are taxed at 20% with an indexation benefit. You do not need to pay any TDS for them.
- Trade benefits
These Bonds are transferable to other individuals. The government issues them for an eight-year term. At the end of the fifth year, you are eligible for early maturity and encashment. You can sell the bonds to other qualified candidates before they mature.
- Collateral against Loans
You can use Sovereign Gold Bonds as collateral when borrowing from banks and non-banking financial companies. The Loan-To-Value ratio equals the ordinary Gold Loan prescribed by the RBI. Granting Loans against SGBs relies on the bank. The maximum and minimum Loan amount also varies. They will demand the pledge of SGBs in Demat or physical certificate form as security.
- Less hassle than physical gold
Unlike physical gold, you need not worry about storing your investment in the Sovereign Gold Bond scheme, as no one can steal it. Further, the 3% GST levied on physical gold purchases does not apply to SGBs. When you invest in Bonds, the redemption price is the average closing price of gold in the last three days of 999 purity. Therefore, you do not need to worry about the quality and purity.
How to apply for these Bonds?
Applications for Sovereign Gold Bonds are available online through issuing banks, digital trading platforms, agents, and designated post offices. If you want to sell them, you can do so anytime in the secondary market if a buyer is available. It is worth noting that the gains will attract taxes in the form of LTCG or STCG, whichever is applicable.
Conclusion
Sovereign Gold Bonds provide the option to own gold without worrying about safety, as they are entirely virtual and digital. Before taking any measures, consult your financial advisor and see if they are a good fit for your portfolio in the long term.
