Planning to buy sovereign gold bonds? Here is what you must know before investing

Indian's affinity with gold is well known. In a bid to satiate their requirements for investment in gold without diluting the balance of payments, the Indian government in 2015 introduced monetisation of gold schemes. In line with that decision, the Indian government is issuing sovereign gold bonds through the Reserve Bank of India (RBI) from time to time. The gold bonds offered by the Indian government are giving 2.5 per cent interest on the investment along with the capital gains on gold. Investment and tax experts are proposing investors to prefer these gold bonds to Gold ETF (Exchange Traded Funds) and other gold mutual funds.

Speaking on the matter Jitendra Solanki, a SEBI registered investment expert told Zee Business online, "On Gold Bonds, an investor can expect two types of income — 2.5 per cent interest and capital gains on gold value. An investor can take either gold or cash during redemption and he or she has to pay the income tax as per the income tax slab applicable on him or her." He said that gold bonds are better than the gold ETF and other gold mutual funds as it has a lock-in of five years in which you can expect at last 9 per cent return on the investment along with capital gains of the gold prices. 

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He said that an investor can invest around 5-10 per cent of his surplus money in gold bonds as diversification of investment is the must."

On what are the parameters that an investor needs to fulfill before investing Balwant Jain, a Delhi-based tax and investment expert said, "Any person as per the FEMA (Foreign Exchange Management Act) can invest in these gold bonds. A guardian on behalf of its minor child can invest in these gold bonds. An investor can invest a minimum of one gram gold value and can increase its investment in multiple of one gram gold." Balwant Jain said that an investor of gold bond can expect exemption on capital gains at the time of redemption citing, "The interest received on gold bonds are taxable in the hands of the investors and any profit earned on redemption of the bonds will be exempt from capital gains tax. However, the exemption from capital gains is available only at the time of redemption and not on the profits earned on sale on the platform of security exchange. A gold bond investor must know that the benefits of indexation are available in case of sale before redemption for computing the capital gains."