How To Buy Gold Bonds And What Are The Advantages?

Sovereign Gold Bonds have become an investment choice for private investors. Even the Indian government consider Sovereign Gold Bonds or SGB a great investment (since late 2015). Gold Bond’s purpose is to let investors partake in the change of gold prices without worrying about the complexities of purchasing and selling actual gold. Plus, other gold investments do not have similar benefits as sovereign gold bonds.

Keeping gold in the form of sovereign gold bonds (SGB) is better than having gold in the form of real gold. When transformed into jewellery, it results in a loss of 15% and 20% because of manufacturing.

Storing gold in the form of coins or gold bars is also a smart investment. However, there are costs for storing, insuring, and maintaining actual gold. While you can store SGB in your DEMAT account or even as physical certificates. In SGBs, the problems of gold maintenance and translation loss are substantially eliminated.

What are Gold Bonds?

The value of a sovereign gold bond is in kilograms of gold. Multiples of one gram are available (gm). The minimal investment is thus 1 gram. Four kilograms of gold per investor every fiscal year is the maximum amount of gold you buy with gold bonds. You can select a nominee. However, do not forget to change the nominee information during investing.

How to Buy Sovereign Gold Bonds?

When the government issues sovereign gold bonds in tranches, they are accessible for purchase. Buy SGBs from nationalised banks, post offices, stock holding corporations of India, scheduled private banks, or licensed stock market traders.

The application form is also available on the Reserve Bank of India website. You may submit an online application through the websites of the above-scheduled commercial banks. For investors applying online and paying using a digital method, the issue price of the gold bonds will be INR 4081 per gram, less than the nominal value. For the purchase of SGBs, you need a PAN number.

Step-by-Step Guide to Buy Gold Bonds

Step 1 – Open your net banking account and sign in

Enter the credentials to access the online banking services. If someone doesn’t have a login ID, they must create one.

Step 2 – Select “e-Service” from the main menu.

Then choose “Sovereign Gold Bond.”

Step 3 – New users should select “Register,” and then review the “Terms and Conditions” established by the Reserve Bank of India. Once all terms and conditions are read and understood, select “continue.”

Step 4 – Along with the information of the registered user from NSDL or CDSL, which holds the investor’s DEMAT account, add the necessary details for the SGB scheme.

Step 5 – Once you have filled out the registration form, click submit.

Step 6 – After registration is completed, select the purchase option from the header tab.

Those who have already registered can ignore the registration procedure and move directly to the header tab’s “Purchase” option.

Step 7 – Add subscription quantity and nominee details.

Step 8 – Enter the OTP (sent to your phone) to complete the process.

Eligibility

Foreign Exchange Management Act of 1999 states to invest in SGB, a person must be an Indian resident. Individuals, HUFs, trusts, colleges, and nonprofit organizations are among the permitted investors.

If someone has purchased SGBs as a resident Indian and afterwards changed their status to non-resident India, they can keep the bonds until redemption or maturity. Minors can also apply for SGBs, as long as their guardian makes the application on their behalf. Joint holding of SGB is also permitted.

Advantages to Buy Sovereign Gold Bonds

Safety

If we compare sovereign gold bonds with real gold, then there are no major risks associated with sovereign gold bonds. However, the only thing that one can worry about is market collapse. In SGB, there are no exorbitant design or waste fees. SGBs generate interest, as opposed to real gold, which is a fruitless investment.

Tradability

Within a certain date, gold sovereign bonds are tradeable on stock markets. You may, for instance, exchange them on the Bombay Stock Exchange or the National Stock Exchange after five years of investing.

Tax Benefit

The tax advantage of the Sovereign Gold Bond plan is very significant. There is no TDS on the interest you get from your SGB investment. You can also exchange the bond before maturity to obtain the indexation advantage. Also, the capital gains tax will be waived if you redeem the bond after maturity. But, the interest is completely taxed according to your tax bracket.

Liquidity Factor

Investors are aware that liquidity is essential to the secondary market’s success. The Sovereign Gold Bond series is not available for random purchase. To meet investor demand, the series has to have a high liquidity quotient.

Interest

Interest is one of the most significant advantages of the Sovereign Gold Bond system. On the SGB investment, the government provides a fixed yearly interest rate. Investors will receive the interest regardless of whether the price of gold grows or lowers.

Collateral

Some banks may accept SGB as security or collateral for loans that are committed in Demat form. Therefore, after fixing the loan-to-value (LTV) ratio to the value of gold, they will regard it as a gold loan.

Who Can Invest In Sovereign Gold Bonds?

You can diversify your portfolio by holding 5% to 10% or more gold. It is ideal for those with a low appetite for risk because it is a low-risk investment. SGBs are quite inexpensive to buy or sell compared to actual gold. In comparison to the cost of buying or selling actual gold, the SGB is also inexpensive.

SGBs are another option for those who don’t want to deal with the difficulties of keeping actual gold. This is because it is simple to keep this in DEMAT form; since they are in electronic form, no one can take them.

Conclusion

All buyers of gold should purchase gold bonds. This is a fantastic, credit-risk-free investing option. There aren’t any yearly or making costs associated. Additionally, it is taxed like actual gold and has indexation benefits. If you need help with finances, you can always take the help of experts such as Piramal Finance to help you find the best solutions to finance your purchase, such as personal loans or credit cards. Visit our website to know more!