The sovereign gold bonds that are periodically issued by the Reserve Bank of India (RBI) are an efficient way to invest in gold. You can invest in it either for the benefit of diversification that comes from the low correlation between the returns from gold and other asset classes such as equity and debt or as a way to accumulate it to meet a future need to buy or gift gold.
The good news is that even though the last tranche of the bonds for FY 20, which was open between 9 and 13 September, is over now, you can still buy the bonds issued so far on the NSE and BSE through any registered stock broker from subscribers who wish to sell the bonds allotted to them.
The bonds have a tenor of eight years. On maturity, the bonds are redeemed at a price calculated as the simple average price of gold of 999 purity, which denotes high quality, of the previous three business days from the date of repayment. The redemption amount is credited to the subscriber’s bank account provided at the time of subscribing to the bonds. The subscriber is intimated one month prior to the date of redemption regarding the maturity of the bond. If there is any change in the bank account details or email account, then the same can be updated through the bank or post office or Stock Holding Corp. of India Ltd (SHCIL) immediately.
If you want to exit early, here’s how you can go about it.
Exit via exchanges
Investors holding the bonds in dematerialized form can sell it on the stock exchange if they need the funds before its maturity. The price of the bonds in the market will reflect the price of gold and the demand and supply of the bonds. Investors holding the bonds in physical mode have to first get it dematerialized before they can sell them on the stock exchange. Note that each tranche of the bond has a different ISIN number for trading on the stock exchanges since features such as the date of issue and maturity, and coupon rate differ.
The bonds can be prematurely redeemed or encashed after the expiry of five years from the date of issue. The encashment can be done on the coupon-paying dates of the bond. A subscriber seeking premature exit must approach the bank, post office or SHCIL 30 days before the coupon date. The proceeds will be credited to the subscriber’s bank account.
The bonds can also be transferred or gifted to any other eligible investor before maturity. To execute the transfer, a prescribed transfer form has to be used to transfer ownership and register the same. The transfer form will be available with the banks, post office and other issuing agents.
The interest income periodically earned on the bonds is taxed at the marginal tax rate of the investor. The capital gains earned on maturity of the bond is exempt from tax. If the bond is sold or redeemed prematurely then the capital gains is taxed after allowing for indexation benefits where applicable.
In the event of the death of the subscriber, the nominee(s) can make a claim. In the absence of a nomination, the bonds can be claimed by the legal heirs. The claim has to be supported by documents such as the Will and succession certificate.
If you have more queries, write in to firstname.lastname@example.org, which is a dedicated email created by RBI to address queries on sovereign gold bonds.