With the recent changes in the Budget, investors and earners are asking themselves if they should invest in sovereign gold bonds. If you’re one of them, or not sure about what these bonds are, here are a few basic things people should know about sovereign gold bonds.
What are Sovereign Gold Bonds?
“Bonds” allow you to buy or invest in gold without the hassle of actually dealing in physical gold. Instead, you have a bond which is a paper tracking the value of real gold. On top of that, the bondholder also earns interest.
Who Issues These Bonds?
Technically, the RBI is the source of these bonds. But they are actually marketed by various actors like banks, Post Office, Non-banking Finance Companies, and brokers or agents. These actors are paid a commission for selling these bonds to investors.
So, to do away with a common doubt – you don’t have to buy these bonds from your bank. You can go to another bank. You can also approach any of the entities mentioned above to invest in bonds. Specifically, National Savings Certificate agents are allowed to issue these bonds as well.
Can Anyone Invest In These Bonds?
Well, not anyone. These bonds are restricted to Resident Indians and entities like Hindu Undivided Families, Trusts, Universities, and charitable institutions. NRIs are excluded from this club.
How to Buy These Bonds?
You can buy a fixed amount of gold, measured in grams. The cost will depend on the preceding week’s effortless average of closing price of 99.9% pure gold published by the India Bullion and Jewelers Association Ltd. (IBJA).
Just like with physical gold, investors need to show adequate Know Your Customer (KYC) documentation. These include Voter ID, Aadhaar card/PAN or TAN /Passport.
The bond can be in paper format, and will specify all these details about the transaction. The Stock/Holding Certificate can be changed into demat form as well.
Minors can also invest in these bonds, with their guardian vouching for it.
There is a minimum amount of gold you have to buy – 2 grams. Nothing lower than that is permitted. Bonds are issued in denominations of 2, 5, 10, 50, 100, and 500 grams of gold. On the other hand, there is also a maximum limit of gold you can buy – 500 grams per fiscal year.
What’s the Interest Like On These Bonds?
Well, the Government may change the interest rate every time they issue these bonds depending on the international and domestic market conditions for gold. The interest earned by the investors is taxable.
How Long Do These Bonds Last?
They have a lock-in period of 5 years, where there is an exit motion. Apart from that, these bonds have a period of 8 years.
Can I Borrow Money Keeping Bonds As Collateral?
Loans can be issued keeping these bonds as collateral, and the Loan to Value is set equal to ordinary Gold loan. This LTV is mandated by the RBI regularly.
So, that’s all the basic stuff you need to know about the sovereign gold bond. While they can be a great, reliable long-term investment, one should be aware of the Budget policies. Not that there’s any risk involved, but every investor has his/her own needs.
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