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SGBs: A smarter way to invest in gold

Why you shouldn’t miss the boat: Unveiling the last SGB scheme of FY 2023-24!

sovereign gold bond

Are you looking to invest in gold? Want to diversify your investment portfolio? The timing couldn’t be better! This year’s last Sovereign Gold Bond (SGB) issue is now open for subscription from from February 12 to 16, 2024, with issuance on February 21, 2024. And let me tell you, there are several factors that make this issue attractive. Let’s dive in and explore what’s on offer!  

But before that, let me give you a brief idea of what SGBs are.

In a nutshell, Sovereign Gold Bonds are a smart alternative to holding physical gold. They are government securities denominated in grams of gold, offering a superior alternative to holding physical gold. 

The risks and costs of storage are eliminated, and you are assured of the market value of gold at the time of maturity. Plus, you can enjoy the additional benefit of annual interest and attractive tax treatment.

With an eight-year tenure and the option to trade them on stock exchanges, SGBs offer flexibility and liquidity to investors. Plus, the indexation benefits on capital gains make your post-tax returns shine even brighter.

What’s on offer?

The Sovereign Gold Bond scheme allows you to invest in gold in a tax-efficient way. The bonds are issued to investors at Rs. 6,263 per bond, tracking the price of one gram of gold. But if you apply and pay using digital modes, you get a discount of Rs. 50 per gram. That means the issue price will be Rs. 6,213 in such cases. 

Plus, investors will also receive interest on SGBs at 2.5 per cent, payable half-yearly. It’s like getting the best of both worlds – the potential for gold price appreciation and regular interest income.

How is the price calculated?

You might be wondering how they come up with the price of these bonds. Well, it’s based on the simple average of the closing price for gold of 999 purity on the last three working days of the week preceding the subscription period.

For this issue,February 07, February 08, and February 09, 2024, which works out to Rs. 6,263/- per gram of gold.

In November 2015, the Centre introduced the Sovereign Gold Bond (SGB) Scheme as a fresh avenue for investors to explore instead of traditional physical gold. These unique bonds not only follow the export-import value of gold but also bring transparency into the picture.

Tranche Subscription PeriodPrice offered
2022-23 Series I June 20-24, 2022Rs 5,041 per gram
2022-23 Series II August 22-26, 2022 Rs 5,091 per gram 
2022-23 Series III December 19-27, 2022 Rs 5,409 per gram 
2022-23 Series IV March 6-10 2023Rs 5,611 per gram 
2023-24 Series 1June 19-23, 2023Rs 5,926 per gram
2023-24 Series II September 11-15 , 2023₹6,263 per gram
2023-24 Series III December 18-22, 2023₹6,199 per gram
2023-24 Series IV February 12-16, 2024₹6,263 per gram

Gold prices and investment potential

The first SGB issue of the year gives investors a good entry opportunity. Gold has been one of the best-performing asset classes in recent years. It’s a safe haven for investors, especially during uncertain times. 

And the good news is that the prices of gold have fallen from their recent highs, presenting a great opportunity for investors with a long-term horizon. Lower prices mean you can get more bang for your buck when you invest in the SGB.

So, if you’ve been waiting to jump into the gold market, now might be the perfect time!

The current pause and expected rate cuts by the Federal Reserve in the U.S. are further expected to boost the price of gold. 

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New issue benefits: The tax Angle

Now, here’s where things get really interesting. Investing in the new Sovereign Gold Bond issue comes with a big tax benefit. If you buy the bond during the issue and hold it till maturity, you won’t have to pay any tax on the capital gains earned during the holding period. That’s right, tax-free earnings!

This can make a significant difference in your overall returns, especially if you have a longer time horizon for your investments.

Additional benefits: Annual interest and tax treatment

There’s even more to sweeten the deal. Investors in SGBs also receive an annual interest of 2.5% on the bonds. This is an extra income that no other gold investment provides. 

And here’s the cherry on top: starting April this year, any return generated from gold mutual funds and gold exchange-traded funds is classified as short-term capital gains and taxed at the slab rate. 

But with the Sovereign Gold Bond, you get more attractive tax treatment. It’s a win-win situation!

Also Read: Union budget 2024: Expectations you must know 

How to buy SGBs?

Buying Sovereign Gold Bonds is easy! They are sold through various channels, including:

  • Scheduled Commercial Banks, 
  • Designated Post offices, 
  • Recognised Stock Exchanges- NSE, BSE, 
  • Organisations like Stock Holding Corporation of India Limited (SHCIL) 

You can pay up to Rs 20,000 in cash, or use a draft, cheque, or electronic banking for higher amounts.

Why should you buy SGB rather than physical gold? What are the benefits?

Let’s talk about the perks! When you invest in SGBs, you get the guarantee of the ongoing market price at the time of redemption. That means your precious gold quantity is protected. 

Plus, say goodbye to worries about storage risks and costs. SGBs eliminate those hassles. On top of that, you’ll enjoy the market value of gold at maturity and receive interest payments along the way. And here’s the icing on the cake: no making charges and purity concerns with gold jewellery. Your bonds are held securely in the books of the RBI or demat form, so there is no risk of losing them!

What is the minimum and maximum limit for investment?

Think big or think small, it’s up to you! The bonds are issued in grams of gold, starting from one gram. You can invest in multiples of that. The minimum investment is one gram, and the maximum limit for individuals and Hindu Undivided Families (HUFs) is 4 kg per fiscal year. 

As for trusts and similar entities, they can go all-in with a maximum of 20 kg per fiscal year. 

Is premature redemption allowed?

Flexibility is the name of the game! While the typical tenor of the bond is eight years, you can encash it early after the fifth year on coupon payment dates. If you hold your bonds in demat form, you can trade them on exchanges or transfer them to another eligible investor. It’s your call!

What are the tax implications on i) interest and ii) capital gain?

Okay, let’s get down to taxes. The interest you earn on your SGBs will be taxable, just like any other income. But wait, there’s a silver lining! The capital gains tax on redemption is exempted for individuals. 

And for those who sell SGBs after a year in the secondary market, there’s a 20% tax on gains, but with indexation benefits to lighten the load.

Remember, with SGBs, you get the sparkle of gold, the charm of regular interest income, and the glitter of tax benefits. It’s a win-win situation!

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Hunny Meghani

A curious mind, a love for writing, and a passion for all things finance - that's me in a nutshell. Whether I'm exploring the latest stock market trends or diving into the nitty-gritty of personal finance, marketing, and AI. I'm always on the hunt for the next big story.

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