What is Sovereign Gold Bond (SGB) Scheme and Its Benefits

March 03, 2019


Indians are emotionally attached to gold. But apart from the shine of this precious metal, it has also been traditionally believed to be one of the best investment options. But when it comes to investing in gold jewellery, the high prices often discourage most investors.

Apart from the current price of the gold, purchasing physical gold jewellery involves making charges which can be as high as 10%. Security too is a major cause of concern. Most investors prefer keeping their gold in bank lockers which again attract an annual fee. Government-issued Sovereign Gold Bond (SGB) is an excellent alternative to purchasing physical gold.

Let us have a look at what SGB is and what are its benefits-

What is Sovereign Gold Bond?

The government of India launched the Sovereign Gold Bond scheme in 2015 for reducing the demand for physical gold. Issuance of gold bonds helps the government to control the imports of physical gold and utilize the resources more effectively.

In simple words, SGB is a government-backed security which is denominated in grams of gold. So, for instance, if you want to purchase 10 grams of physical gold, with SGB you have the option of purchasing 10 grams of gold but in paper or digital format. You will not receive any physical gold for this purchase but only a holding certificate. On maturity, you can redeem the bond for cash.

As compared to physical gold and other investment options, the Sovereign Bonds are known to offer a few important benefits such as-

Higher Returns

The biggest benefit of investing in SGB is the interest you earn on your investment. The government is currently offering an annual interest of 2.5% on SGB investments. This interest is over and above the appreciation in gold prices (if any).

Longer Tenure

As the returns from this gold investment scheme are directly linked to gold prices, the government has selected a longer maturity of 8 years to minimize the price volatility. However, you do get to redeem the bond after 5 years from the date of investment.

Government-Backed Scheme

As SGB is a government-backed scheme, you can rest assured that you’ll receive guaranteed interest on the investment as well as the redemption amount on maturity. This in itself is a major benefit when compared to many other investment options.

Loan Collateral

If you have invested in the gold bond, the bond can also be kept as collateral for taking a loan from a bank. The ratio of bond value to loan is set forth by the RBI to ensure complete transparency. If at all you ever need a loan, your investment in SGB can be very helpful.

Tax Treatment

The proceeds you receive after redeeming your gold sovereign bond does not attract any TDS. If you transfer the bonds, you can also gain indexation benefit. But the interest you receive from this investment is fully taxable as per your income tax bracket.

Smarter way to invest in gold

If you are an experienced investor, it shouldn’t be difficult for you to understand the stability the gold bonds can add to your investment portfolio. But if you are new to investments and are planning to invest in physical gold, try to know more about SGB and its benefits to make a smart investment decision.

You can also get in touch with an authorized bank to know more about Sovereign Gold Bonds and fulfill your dream of investing in this precious metal.




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