Are You Ready to Shimmer Your Portfolio with Sovereign Gold Bonds?

One of the biggest gold consumers in the world, India has always had a strong affinity for yellow metal. But, in reality, gold is the most coveted item, whether for a religious celebration, a major occasion, or a marriage in a family. In addition, some people save gold as a safe haven to use it in times of emergency.

Gold has always been a part of our portfolio, generally kept in physical form in our lockers, whether as a decorative item, a tool for investment, or both. Gold returned roughly 10.74% during the previous three years, while it returned close to 13.31% in 2022. Even though gold has had incredible years, it is known for its ability to remain dormant for lengthy periods.

The compound annual growth rate (CAGR) of gold prices over the past 59 years has been around 12.28%, demonstrating that it does assist you in hedging against inflation.

Investing in gold might include purchasing gold jewellery, coins and bars, or even digital gold. There are gold mutual funds, exchange-traded funds, and sovereign gold bonds (SGBs) to consider even while investing online. The main impediment to widespread digital gold investing is a need for more information and a feeling of apprehension.

This post will provide you with information on the impending SGB 2022–23 Series IV tranche. However, let’s first understand what SGBs are before moving on.

What are Sovereign Gold Bonds?

SGBs are simply government securities denominated in grams of gold. They act as a replacement for real gold. Investors must pay the issue price in cash, and the bonds must be redeemed in cash when they reach maturity. On behalf of the Indian government, the Reserve Bank of India (RBI) issues the bonds. One gram of gold is used as the unit of measure for a sovereign gold bond. Therefore, an SGB’s minimum investment is one gram. These bonds are accessible both physically and digitally. Banks, stock holding corporations, post offices, and recognised stock exchanges sell them.

Eligibility for Investment

Under the Foreign Exchange Management Act (FEMA), any individual, HUF, any other trust, or university that is a resident can invest in SGBs. On behalf of a kid, a guardian may also make investments. A Permanent Account Number (PAN) is required to invest in bonds. While a non-resident Indian (NRI) cannot invest in SGBs, they may hold bonds received as a nominee of a resident investor until maturity.

An individual or a HUF may invest up to 4 kilograms in SGBs each fiscal year. Other qualified organisations, such as trusts, can invest up to 20 kg annually. Both investments made through initial subscriptions and stock exchange transactions are subject to these restrictions. SGBs may be jointly held or held separately. The permissible limit, however, will only apply to the first holder.

Premature Redemption and Tenure

Although early redemption is allowed at any time after five years on the interest payment dates, SGBs have an eight-year tenure. The investor can sell the bonds on stock exchanges even during the first five years of the lock-in term.

Issue and Redemption Prices

The nominal price per gram for SGBs is based on the average price of 0.999 pure gold for the previous three days of the week before the week of issue, as reported by the Indian Bullion and Jewellers Association Limited (IBJA). These bonds’ redemption prices will be decided similarly to their issue price. There is no physical gold given at the time of redemption. On top of the issue price of the bonds, SGB holders get a semi-annual simple interest payment at the rate of 2.5% per annum on the issue price.

Taxation

Taxes on the interest arriving from SGB is taxable as per the provisions of the Income-Tax Act of 1961. Short-Term capital gains (sold before 12 months) arising from the sale of the bonds are taxable in the same way by adding the income to the total income of the individual and according to the applicable taxes. While Long-Term capital gains (sold after 12 months) are taxable at 20% (if indexation is availed) or 10% (if indexation is not availed). If a bond is redeemed with RBI, long term capital gains are exempt.

Also Read: https://www.wintwealth.com/blog/calculation-of-long-term-capital-gains-tax-on-different-asset-classes/

Sovereign Gold Bonds 2022-23 Series IV Tranche

Since its inception in 2015 to December 2022, the prices of SGBs (which are essentially gold prices) have increased by 10.53% annually.

Image Note: The prices in the above graph are the issue price (₹) per gram.

After the launch of the 2022-23 Series III tranche in December 2022, the new tranche – 2022-23 Series IV will be open for subscription on March 6, 2023. The subscription window closes on March 10, 2023. The bonds would then be issued on March 14, 2023. The issue price will be declared when it opens for the subscription. However, looking at the recent trends in gold prices, it is likely to be higher than December 2022’s issue price, which was around ₹5,409 per gram.

Steps To Invest in SGB Online

You can invest in SGB online via your bank’s net banking. Below are the steps for the same:

Step 1: Log in to your bank’s net banking account

Step 2: Click on eServices and go to ‘Sovereign Gold Bond’

Step 3: Select ‘Terms and Conditions’ and click on ‘Proceed’

Step 4: Fill out the registration form. (This is a one-time registration)

Step 5: Enter the subscription quantity and nominee details in the purchase form and click on ‘Submit’

Alternatively, you can also invest offline by filling the Form A, stating clearly the grams (in units) of gold and the full name and address of the applicant. Valid PAN details must accompany every application. You can submit it to designated Scheduled Commercial Banks, designated Post Offices, Stock Holding Corporation of India Ltd., Clearing Corporation of India Ltd. and recognised stock exchanges – National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Remember to ask for the acknowledgement receipt as per Form B. You can also invest digitally through your brokers as well and ₹ 50 discount available in digital application.

Final Thoughts

Gold should be included in one’s portfolio because it acts as a hedge against inflation, you should invest in SGBs to protect against inflation and diversify your portfolio since they yield 2.5% simple interest, and capital gains at redemption are tax-free. However, it should be approximately 5-10 % of your investment portfolio.

Frequently Asked Questions (FAQs)