Why Should You Plan To Invest In Sovereign Gold Bonds?
Indians have historically invested in gold. For adequate portfolio diversification, financial advisers also suggest putting a portion of your investable capital in gold. Due to their appealing qualities, Indians are now investing in sovereign gold bonds (SGB) rather than real gold. Let’s talk about the fundamental characteristics of SGBs and the benefits of buying these bonds.
Who is eligible to purchase sovereign gold bonds?
Investments in SGB are open to any individual, HUF, trust (charitable or not), and university that is a resident under the Foreign Exchange Management Act. A guardian may also invest on behalf of a minor. To invest in the bonds, a PAN is required. While an NRI cannot invest in SGBs on their own, they may keep the bonds they receive as a nominee for a resident investor until maturity. Banks, stock holding companies, post offices, and recognized stock exchanges are among the places where these bonds can be purchased.
A minimum of 1 gram and increments of 1 gram must be requested in the application for SGB, with the highest allowable limit depending on the investor type. A person or HUF may invest up to 4 kilograms in SGB throughout a given fiscal year. Other qualifying entities are permitted to invest up to 20 grams annually. These restrictions include initial subscription deposits as well as transactions made on stock exchanges. SGBs may be held individually or jointly, however, the allowable maximum will only be determined regarding the first holder. Regarding the bonds subscribed for or bought, investors may nominate anybody.
Here are several reasons to buy sovereign gold bonds:
- On the nominal value, the investors will get compensation at a set rate of 2.50 percent per year, payable semi-annually.
- SGB investments are safer than investing in actual gold since there is no storage concern.
- Within a fortnight of the issue, on a date that the RBI will announce, bonds will be tradable on stock markets.
- Unlike gold coins and bars, sovereign gold bonds are not subject to the goods and services tax (GST). Like when purchasing actual gold, you must pay 3% GST when purchasing digital gold. Additionally, SGBs do not have any manufacturing charges.
- It is possible to employ sovereign gold bonds as loan collateral. The loan-to-value (LTV) ratio must be established at the same level as the standard gold loan as required from time to time by the Reserve Bank of India (RBI). The authorized banks must mark the bond’s lien in the depository.
- As part of the Gold Monetization Scheme, the government introduced the Sovereign Gold Bond Scheme in November 2015. The RBI opens the issues for subscription under the plan in stages.
SGB investments can be made by investors using internet banking or their Demat accounts. For investors that apply online and pay for the application digitally, the government will grant a discount of 50 cents per gram less than the nominal amount. While the SGB is issued by the Reserve Bank on behalf of the Government of India, corporate bonds are debt instruments issued by both private and public enterprises. So for risk free return, it is preferable to choose sovereign gold bonds over corporate bonds.