THE SOVEREIGN GOLD BOND SCHEME (SGB)

The Sovereign Gold Bond Scheme(SGB)

2022-23-Series IV is open uptil March 10.

What are Sovereign gold Bonds?

Should u subscribe or buy an existing listed SGB?🤔🤔

A thread🧵on why SGBs are a lucrative option to invest in gold and which one should u buy?

What are Sovereign Gold Bond?

This Gold Bonds scheme was launched in November 2015. The government launched this scheme to reduce the demand for physical gold. 

Indians buy around 300 tons of gold every year.

🪙The investors will be issued a Holding Certificate 

🪙SGBs are government securities denominated in grams of gold

🪙They are substitutes for holding physical gold.

🪙Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.

Which gold product to invest in?

A representation of the pros and cons of every gold product out there!

SGBs are a great product to invest in!

Interest payments:-

🪙You will receive a fixed interest rate of 2.50% per annum payable semi-annually

🪙 Such interest rate is on the value of money you invested initially.

This makes SGBs more attractive than physical gold

Tenure of the investment:-

🪙The tenor of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.

🪙After 5 years onward you can redeem it on 6th, 7th or at maturity of 8th year.

Minimum Investment:-

🪙You have to purchase a minimum of 1 gram of gold.

🪙The maximum amount subscribed by an entity will not be more than 4 kgs per person per fiscal year

Taxation Advantage:-

The SGB can have 3 incomes:-

🪙Interest income

🪙Redemption income

🪙Income if sold in the secondary market

Interest Income-

🪙The semi-annual interest income will be taxable income for you.

🪙These will be added to ur income like ur FDs

🪙Hence, For someone in the 10%, 20%, or 30% tax bracket, the post-tax return comes to 2.25%, 2% and 1.75% respectively.

Redemption of Bond-

🪙After the 5th year onward you are eligible to redeem it on 6th,7th and 8th year.

🪙Let us assume at the time of investment, the bond price is Rs.5,500 and at the time of redemption, the bond price is Rs.6,000. 

🪙Then you will end up with a profit of Rs.500. 

Such capital gain arising due to redemption by an individual is exempted from tax.

This is unlike in Physical gold where capital gains are taxed.

Selling in the secondary market -

🪙SGBs can be sold in the secondary market

🪙Any capital gains that accrue from the secondary market transactions are NOT exempt from taxation.

So what is the new issue?

The new issue details

🪙 Issue Period: 6-10 Mar

🪙 Issue Price: ₹5611/gm

🪙 Online Discount: ₹50/gm

Conclusion:-

🪙SGBs are an attractive way to invest in gold

🪙Exemptions from Capital gains and additional interest make them attractive

🪙However there is no need to invest in the new series when existing series are available at a discount.