9 things to know about Sovereign Gold Bond

The seventh(7) series of Sovereign Gold Bond Scheme 2020-21 will open for subscription today (12th Oct 2020). The price of the latest SGB issue has been fixed at Rs 5,051 per gram of gold. 

Investors applying for the issue online will get a discount of Rs 50 per gram. So the price for them will be Rs 5,001 per gram. The issue will remain open for one week through October 16.

The latest SGB issue comes at a time when gold prices have corrected over 12% from its August high of Rs 56,200 per 10 grams.

9 things to know about Sovereign Gold Bond

1) Gold bonds have a maturity period of eight (8) years with an exit option after the fifth year. However, if an investor is eyeing an exit before the lock-in period of 5 years, they can always get out of the bonds by selling it on stock exchanges. The redemption price is based on the then prevailing price of gold.

2) Price of the issue has been fixed taking the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period. The price published by the India Bullion and Jewellers Association Ltd is used for this purpose.

3) One can apply for a minimum of 1 gram gold in the issue. An Individual and a HUF can invest up to four kg in SGBs in each financial year. Other eligible entities can invest up to 20 kg in a year. These bonds can be bought from banks, Stock Holding Corporation, post offices, and recognized stock exchanges.

4) Any resident under Foreign Exchange Management Act (FEMA) can invest in SGBs. An individual, HUF, trusts whether a public or private and university can invest in SGBs. Even investment on behalf of a minor can be made by his guardian. An NRI cannot invest in these bonds but is allowed to hold these bonds received as a nominee of a resident investor.

5) If you hold SGBs till maturity, there will be no capital gain tax on the investment. Further, you will get an interest of 2.5% annually, which will be paid on a semi-annual basis.

6) SGBs are a superior alternative to holding physical gold. Also, there is no risk of theft, and the costs of storage are eliminated in the case of SGB.

7) SGBs are issued by the Reserve Bank of India on behalf of the government.

8) Documents that are required for applying these bonds are Voter ID, Aadhaar card/PAN, or TAN /Passport.

9) Unlike in physical gold, GST is not levied on SGBs.

SGBs should be a part of your investment portfolio as it helps in diversification. According to us, 5-10% of an individual’s portfolio should be invested in gold.

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