We Indians have traditionally been investing in gold. Financial planners also advise investing element of your investible fund in gold for suitable diversification of your portfolio. Of late, Indian have been investing in Sovereign Gold Bonds (SGB) as an alternative of physical gold due to their desirable features.
Let us go over the fundamental features of SGB and why one should really invest in these bonds.
Who can be invest in Sovereign Gold Bonds
Any Individual, HUF, a Trust (irrespective of whether a charitable one or not) and any University which is resident as per the Foreign Exchange Management Act can invest in SGB. One can also invest on behalf of a minor as a guardian. One requires to have a PAN for investing in the bonds. An NRI although himself can not invest in SGB but can hold the bonds received as a nominee of a resident investor till maturity. These bonds can be subscribed by way of banks, Stock holding corporation, post offices and recognised stock exchanges.
The application for SGB has to be made for a minimum of 1 gram and in numerous of 1 gram topic to the maximum permissible limit as applicable for the category of the investor. An Individual and an HUF are permitted to invest upto 4 kgs in SGB in every single monetary year. Other eligible entities can invest upto 20 rgs in a year. These limits are inclusive of investments made either by way of initial subscription or purchases made on stock exchanges. SGBs can be held singly or jointly but the permissible limit will be computed with reference to the initial holder only. The investors can nominate any in respect of the bonds subscribed or bought.
Tenure and premature redemption of SGB
The SGBs have a tenure of 8 years but the scheme makes it possible for investors to physical exercise an selection to opt for early redemption any time soon after completion of 5 years on the interest payment dates. You can have these bonds in physical type or in demat type. You can convert your holding into physical from demat anytime later on or vice versa. Even for the duration of the initial lock-in period for 5 years, the investor is absolutely free to sell these bonds on stock exchanges in case he requires cash or see cost appreciation.
Issue cost and redemption cost
The SGBs are denominated in a nominal cost for every single gram which is arrived on the basis of typical cost of the .999 purity gold, as published by the Indian Bullion and Jewellers Association Limited (IBJA), for last 3 days of the week preceding the week of situation. For the situation which has opened on 12th July, 2021 and is closing on 16th July 2021, the situation cost is fixed at Rs 4,807/- per gram. There are more concerns just about every month as announced till September, 2021. Investors applying on the net and paying by way of digital mode get a discount of Rs. 50/- per gram. The redemption cost of these bonds will also be computed in the identical manner as situation cost. No physical delivery of gold is provided at the time of redemption. Investors of SGGB get annual interest @ 2.50% on the situation cost of the bonds, which is paid half yearly.
How the interest and capital gains are taxed on SGB
The interest on SGB is totally taxable in the hands of investors but income earned on redemption are totally exempt from capital gains tax. Please note that the exemption from capital gains is only readily available for the bonds redeemed with RBI and not on the income earned on sale by way of stock exchanges. In respect of SGB sold by way of stock exchanges, you can have the rewards of indexation for computing extended-term capital gains if held for more than 36 months. Alternatively, you can physical exercise the selection to spend 10% tax on unindexed gains on sale of SGB by way of your stock broker for investment held for more than 36 months. Profits on bonds sold by way of stock exchanges prior to 36 months are treated as brief term and taxed at the slab price applicable to you.
Should you invest in SGB?
Since gold acts as a hedge against inflation and also affords liquidity for the duration of time of political and financial instability, one should really have some portion of one’s portfolio in gold. In India gold is gifted on all conceivable social occasions, specially at the time of marriage of sons and daughters. So, one should really preserve on investing in gold so as to be in a position to accumulate adequate gold readily readily available at the time of marriage in the family. Since the investment in gold by way of SGB earns you interest as effectively as the capital gains at redemption are tax-absolutely free, you should really invest in these bonds to guard you against any inflation and for diversification of your portfolio.
(The author is a tax and investment specialist, and can be reached at [email protected])