Gold has always been considered a valuable asset and many people invest in gold because it is seen as a hedge against inflation. In times of economic uncertainty or rising prices, gold has historically retained its value and even appreciated, making it an attractive option for investors.
With rising digitalisation, people have shifted to alternate ways to invest in gold and one such option is SGBs, or Sovereign Gold Bonds.
What are Sovereign Gold Bonds?
Firstly, a bond represents a loan that an investor gives to a borrower. Usually, the borrower is the government or a corporate entity and we could be the investors.
Now, SGB is one such bond issued by the Government of India, where gold is the underlying asset which means the government raises funds by offering gold as security.
These bonds are directly linked to the actual price of gold and hence, the amount you invest appreciates as the gold prices rise.
Here are some key features:
- SGBs have a maturity period of 8 years and offer an annual interest of 2.5% which is paid semi-annually.
- They are denoted in grams of gold (1 unit = 1 gram) and the minimum investment amount is equivalent to the price of 1 gram of gold. The maximum limit is 4kg for individuals.
- SGBs are issued by the RBI in tranches which is a time frame of 4-5 days when you can buy SGBs. The next tranche will be open from February 12 to February 16, 2024.
- A pre-mature withdrawal is also allowed after 5 years.
- Once issued, they can be traded in the secondary markets as well.
Who can invest in SGBs?
Any Indian resident, HUFs, trusts, universities and even charitable institutions can invest in SGBs. However, NRIs are not allowed to buy SGBs.
Is a demat account mandatory?
No, it is not mandatory to have a demat account to invest in SGBs. You can buy them via banks and some specified post offices and entities.
However, as SGBs are also traded in the stock exchange, if you want to buy/sell SGB from the secondary markets, having a demat becomes mandatory.
How are SGBs taxed?
There can be two scenarios, one, where you hold the bonds till maturity (8 years) and redeem them.
Two, you sell the bonds on the stock exchange before maturity. The tax implications would be different in both situations.
If you hold the bonds till maturity, the capital gains will be completely tax-exempt. That means you do not have to pay any taxes on the capital gains from these bonds.
If you sell them in secondary markets, the gains will be taxable as short-term and long-term capital gains based on the holding period.
Finally, the 2.5% interest income that you receive will be taxable as ‘income from other sources’ as per your applicable slab rate.
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