Sovereign Gold Bond

Gold is a popular mode of investment for most Indians and specially women. Gold acts as a hedge against inflation and over a period of years provides returns in the range of 6-10% annually.

If someone wants to invest in gold, instead of buying physical gold, it is suggested to invest in the Sovereign Gold Bonds or SGB as they are called.

What is a Sovereign Gold Bond?

• SGB are government backed bonds that are equal to the value of physical gold of 999 purity. Its is similar to buying gold but in dematerialized format.
• SGB are denominated in units of 1 gram of gold
• Minimum investment is 1 gm and max cab be done upto 4 kgs
• The tenor of the bond is 8 years but one has exit options available after 5 years
• Investors will get a fixed 2.5% per annum interest along with the appreciation in the gold price at maturity

Investing in these bonds has greater advantage than holding physical gold:

• Safety: There is no safety issue as is with storing physical gold, since the SGB units are held in demat format. Also there is smaller cost of storage.
• Extra returns: Investors can get full advantage of the price appreciation in 8 years and also get an additional interest of 2.5% per annum
• Liquidity: These can be traded in the secondary market if money is required before the completion of the 8 years
• Taxation: While physical gold when sold is subject to capital gain tax, there is no tax on the redemption of the SGB units at maturity
• Loan: These bonds can be used as collateral to avail loan upto Rs. 20 lakh per individual