Gold is always a very attractive investment for Indian household. After china, India is the biggest consumer of world’s gold. India has imported approx. 200 tons of gold in the first half of 2016. During the festive season, rate of buying gold is also increases. Instead of buying physical gold for investment there are many options available in the market. The most attractive scheme which is launched by Government of India recently is Sovereign gold bonds scheme.
What is Gold Bonds Scheme?
The sovereign Gold Bonds is an investment scheme by which investors can invest into the gold without buying the physical gold. This scheme is linked with gold price. By introducing the gold bonds scheme, Government of India is trying to give the facility of investing in to the gold without having the physical gold which is actually difficult to maintain.
Moreover, it can be traded in the stock exchange which helps regular and easy trading of gold. It will also restrict the importing of gold from foreign countries in lieu of dollars. The bonds are issued by Reserve Bank of India on behalf of Government of India.
- The minimum investment is started from 1 gram of gold.
- The gold bonds can be hold either in Demat account or in paper form.
- Bonds are of eight years tenure. However, you can exit at 5th, 6th and 7th year of tenure.
- Moreover, it can be traded in the stock exchanges. Those are having Demat and trading accounts can easily exit by selling in the stock exchanges.
- An interest of 2.75% per annum will be given per gram of gold payable half yearly. This interest is over and above the appreciated value of gold. This regular income is a significant advantageous than the physical or gold ETF.
- Bonds can be used as loan security like physical gold.
- If you redeem the gold bond, the capital gain tax is exempted. If the bond has been transferred, long term capital gain tax to be calculated considering the indexation benefit.
- On top of that you don’t have a risk of theft or loss of physical gold.
- The bonds are in denomination of 1, 2, 5, 10, 50, 100 grams of gold or other denominations.
- Part holdings can be redeemed in multiples of one gm.
Also Read: Should You Invest in Bharat 22 ETF?
How to buy Gold Bonds Scheme?
You can buy sovereign gold bonds from the commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices. You can buy it through BSE and NSE also.
For example you want to buy the bonds through SBI, fill up the form and approach to any branch of State Bank of India.
You can also buy the gold bonds through your Demat and Trading account.
This is very good product who are interested in investing in the gold. This scheme does not have too many disadvantages except that investing on maximum 500 gms of gold per year. The investment on gold of 500 gms per year is also on a very high side for a retail investor. This bond is for resident Indians. So the Non-resident Indians cannot invest in this gold bond.
Sovereign Gold Bonds Scheme & Tax Implications
- The interest on Gold Bonds is taxable. TDS is not applicable on the bond. However, bond holder to pay tax considering the income from interest.
- If you redeem bonds within 36 months (3 years), you have to pay tax on STCG (Short Term Capital gains) which is as per your Income Tax slab i.e. 0 to 30%.
- Long-term capital gains to any bond holder on sale or transfer of SGB is taxable and he or she is eligible for indexation benefits. You need to hold the Gold Bonds for at least three years to get the benefit of ‘Long Term Capital Asset’. The LTCG (Long Term Capital Gains) is taxed at 20% with indexation.
- Gold bonds will be exempted from capital gains (LTCG) tax at the time of redemption. So, if you hold the bonds for at least five years and if you make any long-term capital gains when redeeming your gold bonds, there will be no capital gain taxes.
Should You Invest in Sovereign Gold Bonds Scheme?
In my opinion, you should invest in the gold bonds scheme as it offers capital appreciation as well as 2.75% interest whereas GOLD ETF offers only capital appreciation. To maintain both, physical gold and Gold ETF, you have to spend some money, but in case of gold bond there is no maintenance charge.
Though Indians are fascinated about gold and specially during Diwali, in my view, one should not expose too much towards the investment in the yellow metal. Fix an allocation for gold such as 10% of total investment as per your requirement and stick with that while balancing your portfolio.
Highlights of Sovereign Gold Bonds Scheme 2017-18
The third tranche of the sovereign gold bonds scheme of FY 2017-18 will be open for subscription between monday and wednesday of every week from October 9 to December 27, 2017. The Government of India is giving a discount of Rs 50 per gram from Nominal Value who pay digitally. The government has set the interest to 2.5% per year which will be paid semi-annually.
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