Are you looking for a hedge against inflation? Do you want to add gold to your portfolio? You may consider putting money in sovereign gold bonds. These are government securities that are denominated in grams of gold. You may invest in sovereign gold bonds if you want a substitute for physical gold without the hassles of storage expenses and making charges. Should you invest in the sovereign gold bond scheme?
What are sovereign gold bonds?
Sovereign gold bonds or SGBs are government securities issued in denominations of grams of gold. You can pay the issue price in cash and redeem the bonds on maturity in cash.
SGBs have a tenure of eight years. However, you have an option of early redemption after the fifth year from the date of issue on the coupon payment dates. You have a minimum permissible investment of one gram of gold in the sovereign gold bond. Moreover, the maximum subscription limit is 4 kg for individuals and HUFs and 20 kg for trusts per financial year.
SGBs offer you an interest rate of 2.5% per annum payable semi-annually directly to your bank account. Moreover, you may use sovereign gold bonds as collateral for loans. You can purchase SGBs from the secondary market. Sovereign gold bonds are tradable on the stock exchanges such as BSE and NSE.
You don’t incur any capital gains tax if you hold the sovereign gold bonds up to maturity. The interest you earn from these bonds are added to your income and taxed according to the applicable income tax slab.
Where to subscribe to the sovereign gold bond scheme?
You have the first tranche of sovereign gold bonds 2021-22 open for subscription from May 17, 2021, with the issue closing on May 21, 2021. The sovereign gold bonds would be issued on May 25, 2021. You have the issue price for the scheme fixed at Rs 4,777 per bond. It helps if you apply online and pay through digital modes to avail of a discount of Rs 50 per bond.
You may subscribe to the sovereign gold bonds at banks (except payment banks and small finance banks), designated post offices, Stock Holding Corporation of India Limited (SHCIL) and recognised stock exchanges such as BSE and NSE.
Should you invest in the sovereign gold bond scheme?
You earn interest on sovereign gold bonds along with the opportunity for asset appreciation. Moreover, you don’t incur storage costs and making and wastage charges as compared to physical gold.
Experts recommend that you have a minimum allocation of 5%-10% of your portfolio towards gold. You can invest in sovereign gold bonds to build the requisite allocation towards gold in your portfolio. It helps if you invest in sovereign gold bonds for the long-term for the sovereign guarantee, interest payouts and tax-free gains.
You may invest in SGBs if you seek to purchase gold at a future date. It helps as you are paid equivalent to the gold price prevalent when you redeem the bonds on the maturity date.
How are sovereign gold bonds taxed?
The capital gains earned from SGBs at the time of maturity of these bonds are tax-free. However, you would incur capital gains tax if you exit these bonds before maturity through the secondary market. The capital gains are taxed similarly to physical gold.
The interest you earn from sovereign gold bonds is added to your income and taxed according to your income tax slab. However, there is no TDS or tax deducted at source.
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