Sovereign Gold Bonds: 11 golden reasons to invest in SGBs today | Sharekhan analysis

The subscription for the twelfth tranche of the Sovereign Gold Bonds (SGBs) scheme, the 2020-21 Series XII, opened on March 1, 2021, and will close on March 5. The SGBs will be allotted on March 9. This is a great opportunity for you to invest in gold. SGBs are government securities denominated in grams of gold. These are substitutes for holding physical gold. SGBs are issued by the central bank on behalf of the Government of India. Investors have to pay the issue price in cash and the bonds are redeemed in cash on maturity.

There are many reasons for buying gold. The yellow metal acts as a hedge against inflation. It is a relatively stable investment compared with equities. It is a good diversification strategy. It can be purchased easily. You know all that. We now give you more reasons if you buy gold in the form of SGBs.

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11 golden reasons to invest in SGBs

1.     SGBs carry a fixed interest rate of 2.50% per annum on the amount of the initial investment. Interest is credited semi-annually to the bank account of the investor.
2.     You can easily purchase SGBs online through Sharekhan and hold the bonds in demat form.
3.     SGB prices are linked to the price of gold of 999 purity published by India Bullion & Jewellers Association (IBJA).
4.     Investing in SGBs eliminates the risk of theft and the cost of storage.
5.     Investors are assured of the market value of gold at the time of maturity and periodical interest.
6.     SGBs are free from issues like making charges and purity associated with purchase of gold in jewellery form.
7.     These bonds are tradeable on Exchanges.
8.     SGBs have a tenure of eight years; early encashment/redemption of the bonds is allowed after the fifth year.
9.     Interest on SGBs is taxable but the capital gains tax arising on redemption of the bonds is exempted for individuals.
10.  SGBs can be used as collateral for loans.
11.  Sovereign Gold Bonds carry the sovereign guarantee as these are issued by the Reserve Bank of India on behalf of the Government of India.

2020-21 Series XII SGB issue details:

Offer period : Mar 1 to 5, 2021 (the bonds will be issued on Mar 9)
Issue price : Rs 4,612 (per gram of gold)
Maturity : Eight years with exit option from the fifth year to be exercised on interest payment dates; these bonds will be eligible for trading from the date as notified by the RBI
Subscription limits for individuals : A minimum 1 gram of gold and a maximum 4 kilogram of gold per person in a fiscal (the April-March period); available in units of 1 gram of gold and multiples thereof
Subscription limits for trusts and other institutions : A minimum 1 gram of gold and a maximum 20 kilogram of gold per institution in a fiscal (the April-March period); available in units of 1 gram of gold and multiples thereof
Taxation : The interest on SGBs shall be taxable as per the provision of the Income Tax Act, 1961 (43 of 1961).
Individuals are exempted from paying the capital gains tax arising on redemption of SGBs.
The indexation benefits will be provided to the long-term capital gains arising to any person on transfer of the bonds