Should you buy Sovereign Gold Bonds for investment? Here are the details

Gold holds a special place of importance for us Indians. Be it festivals or weddings, gold is bought by indian families. To help Indians invest in gold as a proper financial asset instead of physical gold; gold bonds were launched by the government. These can be held in demat format. They can be used as a collateral for loans (The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time).

The government of India will be issuing the fifth tranche of Sovereign Gold Bonds. This issue of bonds will be trade-able on stock exchanges from September 23, 2016.

 

These Gold Bonds will be sold through

  • Banks
  • Stock Holding Corporation of India Limited (SHCIL)
  • Designated post offices
  • Recognized stock exchanges i.e. National Stock Exchange of India Limited and Bombay Stock Exchange.

 

Features of these bonds

Name Sovereign Gold Bond 2016-17 – Series II
Application period 1st September 2016 to 9th September 2016
Available to Resident Indians
Period Maximum 8 years with exit option from the 5th year which can be exercised on interest payment date
Minimum size of investment 1 gram of gold
Maximum size of investment Not to exceed 500 grams per person per financial year
Issue Price Price of Bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the week (Monday to Friday) preceding the subscription period.
Interest rate Fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment.
Tax on interest income Taxable as per slab rates
Tax on redemption Capital gains are exempt on redemption.
Tax on transfer of bond Long term gains shall be taxable. Indexation benefit will be allowed.

 

Our view

As Indians, Gold has held special place in our investment kitty. Some people depend on gold hoping it will rescue them in difficult times. But those who accumulate gold jewellery end up paying a higher price for it. This is because they pay for the cost of craftsmanship as well. Also, physical gold must be kept safely.

If you are a gold digger, these bonds are certainly a better choice as compared to physical gold. The value of your investment rises with rise in price of gold. Plus you don’t need to worry about keeping it safe. There is higher liquidity too, since these can be traded on stock exchanges. Don’t invest for returns though – the interest rate offered is too low and is fully taxable as well. But if you are planning to invest in gold as part of your overall portfolio, these bonds offer ease of purchase, better liquidity and are a safe investment (backed by the government).

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