Sovereign Gold Bonds: The Reserve Bank of India (RBI) has started issuing the next tranche of Sovereign Gold Bonds (SGBs) on behalf of the central government. The Sovereign Gold Bond 2022-23 Series III tranche was opened for subscription on December 19 and will be available till December 23, i.e. Friday. The last and fourth tranche would be issued on March 14, 2023.
Sovereign Gold Bond (SGB) scheme was first launched in November 2015, under the government’s Gold Monetisation Scheme. Under the scheme, the issues are made open for subscription in tranches by RBI. The central bank fixes the issue price. This time, the central government has fixed the issue price at Rs 5,409, in consultation with the RBI. The lock-in period for the scheme is 8 years, but exit options are available in the 5th, 6th, and 7th year, which are exercised on the interest payment dates. And the interest rate, which has been constant since its inception, is 2.5 per cent.
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How to buy Sovereign Gold Bonds, avail discount
Investors interested in buying Sovereign Gold Bonds or SGBs should note the issue price is Rs 5,409 for the third tranche.
But those applying online can avail of a discount. As per RBI, investors who can buy the bonds online and make the payment via UPI or any other digital mode will get a discount of Rs 50 per gram. Therefore, the issue price of a Gold Bond will be Rs 5,359 per gram of gold for online purchases.
The SGBs are available via authorised post offices, and scheduled commercial banks like the State Bank of India (SBI), HDFC Bank, and others.
Sovereign Gold Bonds can also be purchased from Stock Holding Corporation of India Ltd (SHCIL), Clearing Corporation of India Ltd (CCIL), designated post offices and recognised stock exchanges, namely the National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd. Brokers and authorised online platforms can also help with the purchase.
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How to buy SGBs online
Investors who are thorough with net banking can log in to SBI Net Banking, and click on ‘e-Service’ on the main menu page. One can find the Sovereign Gold Bond Scheme option prominently displayed on the page. Investors can press the ‘Purchase’ button, and select ‘Terms and Conditions’.
Following that, one can click on Proceed, and enter details, such as subscription quantity, and nominee details. Once done, click on Submit.
An OTP will be generated and sent to your registered mobile number and email. After entering the digits, click on confirm. This would open a new page, on which the investment details will be displayed.
One should note the RBI is offering a Rs 50 discount for online investors. Those who will the bonds physically, or through agents, will not get any discount. One can direct the respective broker to apply online to avail of the discount.
Premature redemption price of Sovereign Gold Bonds
As per RBI, the premature redemption price of the sovereign gold bond (SGB) Scheme SGB 2017-18 Series XII is available now and has been fixed at Rs 5,409 per SGB. Here one unit of Sovereign Gold Bond is equivalent to one gram of gold.
The RBI has clarified that the price of redemption is based on the simple average closing gold price of 999 purity of the previous three business days from the date of redemption as published by the Indian Bullion and Jewellers Association Limited (IBJA). The date of redemption this time is December 17. So, the average price of gold on December 14, 15, and 16 was rounded off to Rs 5,409.
Investors of SGB 2017-18 Series XII, which is trading under the symbol SGBDEC2512 on the National Stock Exchange (NSE), can be sold at Rs 5,373. The annualised return comes at 13 per cent.
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Taxation of Sovereign Gold Bonds
As per the applicable tax bracket for the individual investor, the interest received from the Sovereign Gold Bonds is taxable. But the bonds have no tax deducted at source.
If an investor sells SGBs in the RBI buyback window then the returns are completely tax exempted for the individual. But the rules will be different for firms, entities, and trusts.
Individuals selling their SGBs on the NSE would attract capital gains tax.
As per RBI directives, “The capital gains tax arising on redemption of SGBs to an individual has been exempted. The indexation benefits will be provided to long-term capital gains (LTCG) arising to any person on transfer of bond.”
Why invest in Sovereign Gold Bonds
SGBs are the perfect alternative to investment in physical gold or even digital gold. According to the RBI FAQs, “They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.”
So, when investors invest in physical gold jewellery, they pay an extra 15 to 20 per cent in form of making charge. For SGBs, there is no such extra payment.
Secondly, investors don’t have to pay GST or Security Transaction Tax on SGBs as compared to physical gold. Lastly, physical gold can have impurities, whereas SGBs are denoted by 999 purity.
“The primary aim behind issuing these Sovereign Gold Bonds is to make them a substitute for investing in physical gold. Meeting demand for physical gold leads to massive imports, which puts pressure on the domestic currency. Sovereign Gold Bonds are an effective alternative to physical gold, it is paper gold. Any investor can invest in gold, without any hassles of storage or related cost, liquidating it is easier than physical gold. The RBI has received a good response from the SGB scheme. It has raised a total of over Rs 31,000 crore since its inception in November 2015 as per its annual report. Gold prices have risen over 11 per cent this year, and more than doubled since November 2015. Hence, SGBs are good to go with,” said Nish Bhatt, Founder & CEO, Millwood Kane International.
