Sovereign Gold Bonds: How to Buy Gold at Lowest Price this Dhanteras

10 Nov 2020 // 25 min read // #mmm news
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Ahead of Dhanteras, the eighth tranche of Sovereign Gold Bond 2020-21 opens up for public. The SGB issued by the Reserve Bank India will be available for entire week preceding Diwali i.e. from November 9 to November 13.

It is believed that buying Gold, Silver and Utensils is auspicious on the festival of Dhanteras. Gold sales spike record high every year on this day. When you buy gold jewellery or coins it also involves making charges and other charges. However, the Gold Bonds offer you cheaper gold at fixed price by the central bank.

For Nov 9-13, Sovereign Gold Bond price is fixed at Rs 5,177 per gram of gold. The customers will get discount of Rs 50 per gram on online purchases. So online price for 10 gms of Gold Bond will turn out to be Rs 51,270. The physical gold is being sold at Rs. 54,120 per 10g for 24k gold (99.9%) in India (Delhi). Thus SGBs are lowest priced gold for customers.

The bond matures in 8 years and investor earns capital gain and interest rates at 2.5% per annum. Here are the top FAQs issued by RBI for investors.

FAQs

✅ What are Sovereign Gold Bonds?

Sovereign Gold Bonds (SGBs) are government backed gold bonds issued by Reserve Bank of India (RBI). They are great investment option and an alternative to buying physical gold. The purchase can be made offline or online at a fixed price.

✅ What is the benefit of buying SGB over physical gold?

You are protected against risk & costs of storage of physical gold. The bond investment is held in the books of RBI/ DMAT and is thus 100% secure. Also, the redemption of SGBs is as per the ongoing market price. So you can tap benefit of value appreciation without incurring any cost on storage or holding any risk.

✅ Is there any risk involved with SGBs?

Well, SGBs are offered for a fixed duration of eight years. So, the risk of capital loss remains, which is subject to decrease in market price of gold. However, the investor will not lose in terms of units of metal.

✅ Who can invest in the SGBs?

All individuals, HUFs, trusts, universities and charitable institutions, qualified as Resident Indians under Foreign Exchange Management Act, 1999 can invest in Sovereign Gold. Those who face change in Indian residential status can continue to hold bonds till maturity.

✅ Is joint holding of SGBs allowed?

Yes.

✅ Can invest in SGBs made in name of Minors?

Yes. A guardian can invest for a minor.

✅ How can investors get application form for SGB?

The application can be made online or offline. The form can be availed of from Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and authorised stock exchanges. Customers can also download form from RBI website. The individual banks also provide e-application facility.

✅ What is the minimum and maximum limit for SGB investment?

The minimum investment in SGBs is one gram of gold. The maximum limit is 4 kg for individuals, 4 kg for HUFs and 20 kg for trusts and entities in a given FY. The annual ceiling will incorporate subscribed bonds under different tranches in a single year.

✅ Can each member of a family buy 4Kg SGB in a given FY?

Yes, subject to eligibility criteria each member of the family can apply.

✅ Do maximum limit of 4 Kg apply to joint SGB holdings?

The primary applicant for specific application needs to meet the 4 KG limit.

✅ What is the rate of interest on SGB and how is it paid?

The Sovereign Gold Bonds bears 2.50% interest per annum on initial investment amount. The return is fetched twice a year to the investor’s bank account.

✅ How does RBI fix the price of gold bond?

The price of SGB is based on Gold value in the last 3 business days of the preceding week of the subscription. The price is calculated by evaluating simple average of closing price for 999 Gold purity as published by India Bullion and Jewelers Association Limited. The central bank releases the price for subscription on RBI website two days before the issue opens.

✅ How is redemption of SGB processed?

One month prior the redemption, the investor will be advised by a representative. On date of maturity, the amount (basis the current price of Gold) will be credited to the bank account of the investor. This is why, every investor is requested to ensure that any update in account details are communicated to the issuing bank/ institution at the earliest.

✅ Can I encash the bond prematurely during emergency?

The total tenor of the bond is 8 years. Early redemption is allowed only after fifth year from the date of issue. If the bond is held in DEMAT form, the same can be traded on Exchanges.

✅ Can I use SGBs as collateral for loan?

Yes, Sovereign Gold Bonds can be used as collateral for loan from banks, NBFCs and financial Institutions. The Loan to Value is calculated as regular Gold Loan. However, the loan will be processed as per specific lender’s credit policy.

✅ Are there any tax implications on interest or capital gain earned on SGB?

Yes, tax on interest will apply as per Income-Tax Act, 1961 (43 of 1961). The capital gain has been exempted from taxation.

✅ Is nomination facility available for Gold Bond investments?

Yes; the provision for nomination is applicable as per Government Securities Act 2006 and Government Securities Regulations, 2007. The investor is required to fill the nomination details at the time of filling bond application.

✅ What happens on death of an SGB investor?

The nominee(s) should approach the respective Receiving Office for claim. The claim will be recognized as per Government Securities Act, 2006, chapter III of Government Securities Regulation, 2007. The same process is applicable for death of minor investor or holding without nomination.  The claim should be verifiable as per the criteria laid down in Government Securities Act, 2006.

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