Sovereign gold bonds (SGBs) are financial instruments that reward investors with a fixed interest rate of 2.5% for five years, and can be traded with an initial value at time of purchase of Rs 1 lakh for 5 years.
What are Sovereign Gold Bonds (SGBs)?
Sovereign Gold Bonds (SGBs) are special bonds issued by the government that are backed by gold. They offer investors a number of benefits, including a fixed interest rate, safety from market fluctuations, and easy liquidity.
SGBs were first introduced in India in 2015, and have since become popular investment instruments. In 2020-21, SGBs worth Rs 6,000 crore were subscribed to by investors.
Here’s everything you need to know about SGBs, including how they work and why you should consider investing in them.
What are Sovereign Gold Bonds?
Sovereign Gold Bonds (SGBs) are special gold-backed bonds issued by the government. They are available for purchase from banks, stock exchanges, and designated post offices.
The main purpose of SGBs is to reduce demand for physical gold, which is often used as a store of value or hedge against inflation. By investing in SGBs instead of buying gold bullion or coins, investors can get many of the same benefits without having to worry about storing or protecting their gold.
SGBs have a number of features that make them an attractive investment:
Fixed Interest Rate: SGBs offer a fixed interest rate that is paid out semi-annually. The current interest rate on SGBs is 2.50%.
This means that if you invest Rs 1 lakh in SGBs
How Do You Buy SGBs?
When the Indian government introduced Sovereign Gold Bonds (SGBs) in 2015, it was a game changer for gold investors. For the first time, investors could invest in gold without having to take physical possession of the metal. And unlike other gold-backed investment products, SGBs are backed by the government, making them one of the safest ways to invest in gold.
So how do you buy SGBs? The process is actually quite simple. You can buy SGBs from most major banks and financial institutions in India. You can also buy them directly from the Reserve Bank of India (RBI).
The minimum investment amount for SGBs is Rs. 5,000, and there is no maximum limit. You can pay for your bonds using cash, cheque, or demand draft. Once you have made your purchase, the bonds will be credited to your account on the date of issue.
Sovereign Gold Bonds are issued for a period of 8 years, but you have the option to redeem them after 5 years. The interest rate on SGBs is 2.75% per annum, payable semi-annually.
So if you’re looking for a safe and convenient way to invest in gold, Sovereign Gold Bonds are a great option.
Read more about what are bonds
Why Should You Invest in SGBs?
Sovereign Gold Bonds (SGBs) are a government-issued, interest-bearing instrument that allows investors to own gold without having to take physical possession of it. SGBs are backed by the full faith and credit of the issuing government, and are therefore considered to be one of the safest ways to invest in gold.
There are several reasons why you should consider investing in SGBs:
1. Safety: As mentioned above, SGBs are backed by the full faith and credit of the issuing government, making them one of the safest investments you can make.
2. liquidity: SGBs are highly liquid, meaning they can be easily bought and sold on the secondary market. This makes them an ideal investment for those who may need to access their money quickly.
3. Flexibility: SGBs offer investors a great deal of flexibility in terms of how they can be used. For example, they can be used as collateral for loans or used to hedge against currency risk.
4. Growth potential: Unlike physical gold, which is subject to storage costs and other risks, SGBs offer investors the potential for capital appreciation over time. In addition, the interest payments received on SGBs can provide a source of income during periods of market volatility.
Who Is Eligible for SGBs?
Individuals, HUFs, Trusts, Companies, Body Corporates and Partnership Firms (not being LLPs), Universities and Educational Institutions can subscribe to Sovereign Gold Bond Scheme.
The minimum subscription amount is one gram of gold with a maximum subscription limit of 4 kg for individuals and HUFs, 20 kg for trusts and similar entities per annum and 500 kg for universities and other eligible institutions.
Pros and Cons of SGBs
When it comes to sovereign gold bonds (SGBs), there are pros and cons to consider before making an investment. On the plus side, SGBs offer a number of advantages including being backed by the government, having a fixed interest rate, and providing liquidity through secondary market trading. On the downside, however, SGBs may not be suitable for everyone due to their long-term nature and the fact that they are not physical gold.
Government backing is one of the main advantages of investing in SGBs. This means that if something were to happen to the issuing organization, the government would step in and cover any losses. Additionally, SGBs have a fixed interest rate, which can provide stability in an uncertain market. Furthermore, unlike with physical gold, SGB holders can trade their bonds on a secondary market, providing more liquidity than if they were holding gold bars or coins.
However, there are also some disadvantages to consider before investing in SGBs. One is that they are a long-term investment – typically 10 years – so they may not be suitable for everyone. Additionally, because SGBs are not physical gold, investors will not have direct ownership of the metal. This could make it difficult to sell or use as collateral in times of need.
Conclusion
Sovereign Gold Bonds are a great investment option for those looking to invest in gold. They offer many benefits such as being backed by the government, having a fixed interest rate, and being eligible for a Capital Gains Tax exemption. If you’re looking to invest in gold, Sovereign Gold Bonds are definitely worth considering.
