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All you need to know about Sovereign Gold Bonds

Sovereign gold bonds will be sold every month from October 2018 to February 2019 through banks, Stock Holding Corporation of India, designated post offices, and recognized stock exchanges. Photo: iStockPremium
Sovereign gold bonds will be sold every month from October 2018 to February 2019 through banks, Stock Holding Corporation of India, designated post offices, and recognized stock exchanges. Photo: iStock

  • As gold has been a choice of investment for a major lot of investors, SGBs is definitely the advancement of technology which is considered a risk-free and safer option than the physical gold. Here, in the article we discuss various important aspects about SGBs like their benefits, physical gold or SGB which is a better option, how to buy SGB and much more.

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For Indians gold holds more importance than just an investment. With the advancement of technology there have been various ways to own gold without the risk of theft, storage problems along with no making and wastage charges. Sovereign Gold Bond (SGB) is one such way, which is backed up by the Government of India and RBI.

The government of India introduced Sovereign Gold Bond (SGB) in November 2015 as an alternative to physical gold. SGB takes in notice export-import values of the asset along with transparency at all times. As SGBs are backed up by RBI they are considered a safe option because of which SGBs have seen a drastic increase among the investors.

An investor can invest in SGB, by approaching a SEBI authorised agent or broker. Once you have redeemed the bond, the corpus (according to the current value in the market) will be deposited in your registered bank account.

As we have discussed the basic meaning of SGB, let us answer a few questions regarding the same for a better understanding.

READ MORE: Understanding the difference between gold ETFs and gold mutual funds

What are the benefits of investing in SGB?

From the basic definition it can be concluded that SGB can be a fruitful investment for an investor who is looking to diversify his portfolio or looking for a low-risk investment. Let us now go more into specifics:

There is no risk of storage or theft when investing in SGB, while when the investors invest in physical gold a lot of such risks and worrying about the safe keepings kicks in. In such types of schemes, the investors don't have to pay for lockers where their gold will be kept and such costs are eliminated.

The bonds have lower risks as they are backed up by the Government of India, making this type of gold investment safe and secured for the investors.

The bond can be redeemed on maturity or prematurely at the current market price.

When investors invest in physical gold especially jewellery, they have to pay making charges which is not recovered in reselling while on the other hand, there is no such cost involved while investing in SGB

The Government of India have exempted the tax on capital gains from buying SGB, while the interest gained from the same is taxable

SGB can be used as a collateral in taking loans from the banks.

Physical Gold VS SGB | Which is better?

Physical Gold and Sovereign Gold Bonds both have their benefits and loopholes, the investor is the one who needs to make decisions according to their financial needs and situations. Investors should keep the above mentioned parameters in mind before making the decision so that the decision comes out to be fruitful and makes the investor achieve their financial goals.

READ MORE: Why should you add gold to your investment portfolio? Here are four reasons

How to buy SGBs?

SGBs can be bought by any commercial banks or post office. They are issued twice a year, whose specific timeline has not been decided yet. An individual who is planning to buy SGB can follow the following steps (some of the steps might differ according to different bank/post office norms - but the major formality remains the same) -

First the individual needs to fill out the form which is available online (depending on the bank you’re applying through, go the respective bank site)

The investor needs to fill 3 forms in total in order to buy SGBs. First being Form A, it is the main subscription form where you will give all your personal details and specify the subscription amount. Form B is mainly the acknowledgment form, which is given by the bank officer in order to fill details about your subscription. And lastly, Form D is for nomination which needs to be submitted along with Form A.

Along with forms mentioned above, investors need to attach their identity and address proof to complete the KYC formalities.

The payment for the subscription can be done through various ways like cheque, cash, demand draft, and electronic fund transfer. If the individual wishes to pay from the check, they need to make sure that the cheque is cancelled.

After all the documents have been submitted to the branch, the bank checks and verifies all the documents after which the investor receives Form B, which is the acknowledgment receipt.

Now, for subscribing the investor needs to go to the respective bank branch, the bank will access the e-Kuber system of RBI and will upload all your details and after which immediate confirmation will be provided.

RBI generates the holding certificate which will be downloaded by the bank and sent to the investor.

Buying SGBs from the secondary market

As discussed above, SGBs are not issued throughout the year, therefore investors who have missed their chance of buying these bonds earlier can buy them in the stock exchange aka secondary market.

The investor requires a trading and demat account to buy these bonds in the secondary market. The first step can be tracking the SGBs, the investors can do so on the NSE and BSE.

These bonds are generally known to track one gram of gold, and also the liquidity is low. Traded volumes are low, and the prices at which they are traded are discounted than the prevailing price.

The investor class usually buys the SGBs from the capital market, when the price of SGBs are less than the issue price. It should be noted that the price on the stock exchange of the SGBs are decided by the underlying i.e., gold.

One more plus point of buying SGBs from the secondary market is that there is no lock-in period of 5 years, the investor can wish to redeem the bond as and when they want.

The article concludes by giving all major questions regarding SGBs which makes investing in the bonds easier and gives sufficient knowledge to the investor to make a rational decision.

SGBs are a great option to invest in and technology has made it easier for investors to invest in such bonds without the risk of theft, storage etc.

 

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