As Indians our love for gold is unparalleled. It goes beyond the market value and the fact that it is a profitable investment opportunity; as it is infused in our culture itself. If you are looking to invest in gold, Sovereign Gold Bonds might be the best alternative. Digital gold is not only the safest way to add gold to your portfolio, but also an option that promises best returns. They are issued by the government of India and come with some additional benefits compared to buying gold directly.
- Wish to save money on taxes?
- Want to avoid storage or maintenance costs?
- Dream to earn a fixed income for the rest of your life?
SG Bonds offer all these benefits in a single product. The best part is that you get all these benefits at no cost. Sovereign Gold Bonds give an opportunity to invest in gold and earn a fixed return without paying any upfront fees or commissions. However, there are certain eligibility criteria that must be met before applying for them. Here is everything you need to know about Sovereign Gold Bonds…
How do they work?
Sovereign Gold Bonds are a new financial instrument launched by the Government of India in November 2015 as a way to encourage investment in physical gold. The bonds can be purchased by individuals and corporations directly from the government or through banks and Asset Management Companies.
These bonds give the holder the ability to both lock-in a price for their gold and also receive an interest payment every year. They are issued at a fixed rate of return, which is payable on maturity after 3 years. Like most fixed-return financial instruments, they have led some people to brand them as “sub-standard” as they have no exposure to increasing prices (a key risk with investments in physical gold).
What are Sovereign Gold Bonds?
Sovereign Gold Bonds are issued by the government of India and are backed by gold reserves of the country. The idea behind issuing SG Bonds is to create a long-term source of low-cost funds by mobilizing long-term financial resources. These bonds are a part of the government’s Gold Monetization and Gold Sovereign Bonds Scheme. The plan seeks to decrease the country’s reliance on importing gold to satisfy domestic demand, thereby reducing the current account deficit (CAD).
If you’re looking for a new way to invest in gold, read on to learn more about the benefits of investing in SGBs and how you can buy these bonds.
Eligibility for buying Sovereign Gold Bonds
To invest in SGBs, you must be a resident of India, as defined by the Foreign Exchange Management Act of 1999. Individuals, (HUFs), trusts, academic institutions, and non-profit organizations can all invest. Individual investors may keep SGBs until they are redeemed or mature, even if their residency status has changed from resident to non-resident.
SGBs even provide the provision of joint holding. Minors may be joint holders. The minor’s guardian must submit the application on his or her behalf. However, the maximum investment cap of 4 kilos applies only to the first applicant in a joint holding situation.
The right time to invest in Gold Bonds is NOW!
India’s gold imports have grown steadily in the past decade and have now become a cause of concern for the government. In fact, the Reserve Bank of India has recently proposed a new scheme to curb the imports of gold in the country. As part of this scheme, the Indian government has proposed to make gold bonds available to its citizens.
Gold bonds are basically “virtual gold” where you buy a bond worth a specific amount of gold in the government’s vault. The best thing about this scheme is that it is available to all residents of India, including NRIs. You can use these bonds to diversify your portfolio with gold, but you don’t have to go the physical route.
The only difference between “physical gold” and “virtual gold” is that the latter is fully paper backed.
How to apply for Sovereign Gold Bonds?
Investors can apply for the bond through SEBI authorized trading members and financial advisors of the National Stock Exchange of India Limited and other channels specified by RBI. You can also apply for SG Bonds online at the National Securities Depository (NSDL) website.
The Benefits of Investing in Sovereign Gold Bonds
- Bonds can be used as collateral for loans.
- You can diversify your portfolio with gold and earn a fixed return at the same time.
- You can hedge against inflation by investing in gold.
- There are no restrictions on when you can sell the bonds. You can even redeem the bonds before the maturity date.
- There are no storage or maintenance charges.
- There is no tax on the interest earned.
- You can redeem the bonds at any time and receive the gold equivalent to the bonds.
- The interest rate on these bonds is fixed throughout the life of the bond. You don’t have to worry about the gold rate going up or down.
- Sovereign gold bonds are the safest way to invest in gold. They are issued by the government itself and are backed by the country’s gold reserves.
The best thing about these bonds is that you get all the benefits of owning gold (like hedging against inflation and diversifying your portfolio) at no cost. You can invest in these bonds and earn a fixed return without paying any upfront fees or commissions.
For a frictionless investment journey, all you have to do is get expert help. Consulting AMC’s can make a huge impact on your investment portfolio as they are equipped with the right tools and acumen to make profitable investments on your behalf.
To learn more about these investment options and make informed decisions, connect with us.
