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Sovereign Gold Bonds (SGBs) are Government Securities denominated in grams of gold. They serve as a better alternative to holding physical gold. Investors can purchase these bonds for the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by the Reserve Bank on behalf of the Government of India.
With greater market volatility and below average returns in equity, investing in gold has increased in attraction. Market experts suggest that investors should hold at least 5-10% of gold investment. Despite rising gold prices, gold bonds have consistently delivered better returns.
The Sovereign Gold Bond issued by the Government of India can be purchased at leading banks, Stock Holding Corporation of India Limited (SHCIL), designated Post Offices and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
About IDBI Bank Gold Deposit Schemes
IDBI Bank is one of the leading commercial banks offering the Sovereign Gold Bond to its customers. The Sovereign Gold Bond Scheme 2019-20 - Series IX will be opened for subscription from February 03 – February 07, 2020. The nominal value of the bond based on the simple average closing price, [published by the India Bullion and Jewellers Association Ltd (IBJA)], for gold of 999 purity of the last three business days of the week preceding the subscription period, i.e. January 29 – January 31, 2020 works out to ₹4,070/- (Rupees Four Thousand and Seventy only) per gram of gold.
Those investors applying online and making digital payment against the application will get a discount of ₹50/- per gram less than the nominal value. For such investors, the issue price of Gold Bond will be ₹4,020/- (Rupees Four Thousand Twenty only) per gram of gold.
Investing in physical gold is quick and convenient. However, there are many pitfalls with physical gold in terms of redemption and storage. Let us have a look at these investments
Gold Coins/Bars from the bank
Sovereign Gold Bonds
You have to pay making charges ranging from 5 -20%
Banks charge 10-20% mark-up charges
Loss of making charges, value add charges & taxes
Banks do not take it back, so premium paid at time of purchase is written off
The bank may apply processing charges of Re.1 per Rs.100 of the bond value at the time of redemption
Hassle of storing them. Lockers and insurance charges to be incurred.
Nil, as they are given in bond form or demat form
Need to pay Long term capital gains tax after 3 years, plus wealth tax
The interest earned on this bond is taxable at your income tax slab. There is no capital gains tax on the returns from this bond.
Eligibility for Investment
Form of Security
The Bonds shall be issued in the form of Government of India Stock. The investors will be issued a Holding Certificate, which shall be eligible for conversion into demat form.
Date of Issue
The latest tranche of Series IX is available for subscription from February 03rd – February 07th, 2020. The Bond issue date is February 11th 2020
The Bonds shall be available in denominations of units of one gram of gold or multiples thereof.
Minimum investment in the Bonds shall be one gram with a maximum limit of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities, notified by the Government from time to time. This limit is for per fiscal year.
The nominal value of the Bonds shall be fixed based on a simple average of closing price of 999 purity gold, published by the India Bullion and Jewellers Association Limited, for the last 3 working days of the week preceding the subscription period.
The Bonds shall bear interest from the date of issue at the rate of 2.50% (fixed rate) per annum on the nominal value. Interest shall be paid in half-yearly rests and the last interest shall be payable along with principal on maturity.
Scheduled Commercial Banks (excluding RRBs, Small Finance Banks and Payment Banks), designated Post Offices (as may be notified), Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Ltd. are authorized to receive applications for the Bonds either directly or through agents.
Payment shall be accepted in Indian Rupees through cash, up to a maximum of ₹ 20,000/- or by direct debit from your IDBI Bank account.
The Bonds shall be repayable on the expiration of 8 years from the date of issue of the Bonds. Premature redemption of the Bond is permitted after the fifth year of the date of issue of the Bonds and such repayments shall be made on the next interest payment date.
The redemption price shall be fixed based on a simple average of closing price of 999 purity gold, published by the India Bullion and Jewellers Association Limited, for the last 3 working days of the week preceding the maturity date.
Loan against Bonds
The Bonds may be used as collateral for loans.
Interest on the Bonds shall be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.
Applying for the Bond
IDBI Bank Customers can apply for the bond through their Inet banking portal. They may also visit any of the IDBI Bank Branch with KYC and submit the application form.
Transferability of the Bond
Available as per eligibility criteria of the receiver
Tradability of bonds
Yes, the bonds are tradable on stock exchanges
Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
1. Are there any risks in investing in SGBs?
There is an amount of risk involved with investing in SGBs. Investors may face the risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.
2.Is joint holding of SGBs allowed? Can minors invest in SGBs?
SGBs can be bought jointly with another individual. Individuals can also purchase this bond on behalf of minors.
3. Where can investors get the application form?
IDBI Bank allows online application of the bond through your Netbanking account. The application form can be availed at the issuing banks/SHCIL offices/designated Post Offices/agents. It can also be downloaded from the RBI’s website.
4.Can an investor hold more than one investor ID for subscribing to the Sovereign Gold Bond?
No. An investor is given a Unique Investor Id linked to any of the prescribed identification documents. The unique investor ID is to be used for all the subsequent investments in the scheme. For holding securities in dematerialized form, quoting of PAN in the application form is mandatory.
5. Is the maximum limit of 4 Kg applicable in case of joint holding?
The maximum limit will be applicable to the first applicant in case of a joint holding for that specific application.
6. What will I get on redemption?
On maturity, the Gold Bonds shall be redeemed in Indian Rupees based on a simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewellers Association Limited.
7. If I apply, am I assured of allotment?
If the customer meets the eligibility criteria, produces a valid identification document and remits the application money on time, he/she will receive the allotment. However, submitting the application itself does not guarantee allotment.
8. How will I get the redemption amount?
Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.
9. Is tax deducted at source (TDS) applicable on the bond?
TDS is not applicable on the bond. However, it is the responsibility of the bond holder to make the necessary tax payments on the interest received.
10. Can I redeem just a part of the bond?
Yes, part holdings can be redeemed in multiples of one gm.
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