The subscription to the eleventh tranche of the SGB system (Sovereign Gold Bonds), Series XI 2020-21, is open from February 1st to 5th, 2021. The SGB will be allocated on February 9th.
This is a great opportunity for you to invest in gold. SGBs are government bonds that are denominated in grams of gold. These are substitutes for holding physical gold. SGBs are issued by the Central Bank on behalf of the Government of India. Investors must pay the issue price in cash and the bonds will be redeemed in cash when due.
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There are many reasons to buy gold. The yellow metal serves as a hedge against inflation. It’s a relatively stable investment compared to stocks. It’s a good diversification strategy. It can be bought easily. You know it all. We’re now giving you more reasons to buy gold in the form of SGBs.
11 golden reasons to invest in SGBs:
1. SGBs have a fixed interest rate of 2.50% per year on the amount of the initial investment. The interest is credited to the investor’s bank account every six months.
2. You can easily buy SGBs online through Sharekhan and keep the bonds in demat form.
3. SGB prices are tied to the gold price of 999 purity published by the India Bullion & Jewelers Association (IBJA).
4. Investing in SGBs eliminates the risk of theft and storage costs.
5. Investors are assured of the market value of gold at the time of maturity and the periodic interest.
6. SGBs are free from problems such as fees and purity associated with buying gold in jewelry form.
7. These bonds are tradable on stock exchanges.
8. SGBs have a term of eight years; Early redemption / redemption of the bonds is permitted after the fifth year.
9. Interest on SGB is taxable, but the capital gains tax resulting from the repayment of the bonds is exempt for individuals.
10. SGBs can be used as collateral for loans.
11. Government gold bonds carry the state guarantee as these are issued by the Reserve Bank of India on behalf of the Indian government.
Details on the SGB problem of the XI 2020-21 series:
Offer period: February 1st to 5th (the bonds will be issued on February 9th)
Issue Price: Rs 4,862 (per gram of gold)
Maturity: Eight years with an exit option from the fifth year to be exercised on interest payment dates; These bonds can be traded from the date notified by the RBI
Subscription limits for individuals: a minimum of 1 gram of gold and a maximum of 4 kilograms of gold per person in a financial year (period April to March); Available in units of 1 gram of gold and a multiple thereof
Subscription limits for trusts and other institutions: at least 1 gram of gold and a maximum of 20 kilograms of gold per institution in one financial year (period April to March); Available in units of 1 gram of gold and a multiple thereof
Taxation: SGB interest is taxable under the provisions of the Income Tax Act of 1961 (43 of 1961).
Individuals are exempt from paying capital gains tax resulting from the repayment of SGB.
The indexation benefits are granted for the long term capital gains that an individual will incur on the transfer of the bonds.
