First Sovereign Gold Bonds batch to mature on November 30: How to redeem; and different investment strategies for SGBs

Sovereign Gold Bonds (SGBs) are supposed to be one of the safest methods of investing in gold as they are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. SGBs are substitutes to holding physical gold and are considered government securities denominated in grammes of gold. Investors have to pay the issue price in cash, and the bonds can be redeemed in cash on maturity.

The first SGB was released on November 30, 2015. According to the terms of the arrangement, the bonds must be repaid eight years after they are issued. As a result, on November 30, 2023, the first tranche of SGB will mature. The current interest rate for SGB is 2.5 per cent a year on the initial investment with payments made semi-annually.

When it comes to investing in these bonds, there are a few strategies that one can consider for better investment gains:

Hold for long term: According to Palka Arora Chopra, Director of Master Capital Services Ltd., one of the popular approaches is to hold the bonds for the long term. One can opt to hold the bonds until maturity, typically eight years. This strategy allows you to benefit from the interest rate and the potential appreciation of gold over the long term. 

Tax benefit: As per experts, SGBs offer certain tax benefits, such as exemption from capital gains tax if held till maturity. This can be beneficial for investors aiming to optimise their returns. However, if the bonds are sold before maturity, capital gains tax may be applicable based on the prevailing tax laws at that time.

Diversification of portfolio: SGBs can be a part of a well-diversified investment portfolio. By allocating a certain percentage of one's overall portfolio to gold bonds, one can potentially reduce the risk and achieve a balanced investment strategy.

SIP: Using systematic investment plans can help in disciplined acquisition. A sound wealth management plan is key to creating a well-rounded investment portfolio and carefully allocating funds to SGBs. 

What are the procedures involved during redemption?

According to RBI's official website: 

-The investor will be informed one month before maturity regarding the ensuing maturity of the bond.

-On the date of maturity, the proceeds will be credited to the bank account as per the details on record.

-In case there are changes in any details, such as the account number, and email ID, then the investor must inform the bank/SHCIL/PO promptly.

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