Here are 10 essential things to know about the popular gold-linked bond scheme, the SGB.
Issued by the RBI on behalf of Government of India, SGBs are a secure investment option backed by the country's sovereign guarantee.
SGBs offer a fixed interest rate of 2.5% per annum, paid semi-annually. This is in addition to any gold-linked returns earned during the term of the bond.
Bonds are issued in denominations of one gram of gold and in multiples thereof. Simply put, this means that every unit of the bonds is equivalent to the value of one gram of the precious metal.
The maturity period is 8 years, with an exit option available after the completion of the first five years. After this period, the bond can change hands in the secondary market (traded like stocks).
SGBs cannot be converted into physical gold. However, they are a preferred way to invest in gold because they allow investors to avoid the making charges associated with purchasing jewellery (physical gold).
Capital gains arising from SGBs are exempt from tax, if held until maturity. However, the interest earned is taxable.
Yes, they can be traded on stock exchanges after the first five years.
The minimum investment amount is equivalent to 1 gram of gold, while the maximum limit for individuals is 4 kg per financial year. Remember that the price of each issue is unique, as it is based on the current market price.
SGBs are available through banks, post offices, and approved financial institutions. You can apply for SGBs either online or offline.
As a government-backed financial product, SGBs are considered low-risk compared to other gold investment options such as physical gold or gold ETFs.