Sovereign Gold Bond Series-III of 2020-21 would open for subscription on 8 June, 2020. Sovereign Gold Bond Issue Price is based on the average price of the preceding 3 days of the issue opening date which is fixed by Govt of India. SGBS offers Rs 50 per gram as discounts to investors who invest online in demat form. When stock markets are volatile, you might be thinking whether investing in gold is a good decision or not. In the article, I would provide details about Sovereign Gold Bond Scheme issue details of June 2020 and who can invest in these gold bonds now.
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What are Sovereign Gold Bonds?
You can skip this section if you are already familiar about SGB.
Indians have been buying gold on all auspicious occasions, even though there is no requirement of gold considering the price appreciation in the future. In view of that, Govt of India has been issuing Sovereign Gold Bond Issue where one can invest in gold in grams, get interest every 6 months and also get the equivalent amount of gold on maturity. This is as good as investing in physical gold, but getting interest every 6 months in additional.
Sovereign Gold Bond Scheme 2020-21 Series-III – Issue details
This Sovereign Gold Scheme of Series-III of 2020-21 would open for subscription on 8th June and closes on 12th June, 2020
These bonds are issued by RBI on behalf of the Government of India, hence are considered as one of the safest investment options.
These gold bonds would be issued on 16th June after subscription is closed. It would be issued in physical form or demat form.
These bonds would carry 2.5% interest rate per annum, which is payable every half year.
Sovereign Gold Bond issue Price is decided based on the price of the gold pertaining to preceeding 3 days average rate of 999 purity gold price published by Indian Bullion and Jewellers Association Ltd. For this series 3, they have fixed Rs 4,677 price per gram. Investors who are investing in demat form would get discount of Rs 50 per gram (Rs 4,627 per gram issue price)
The sovereign gold bond scheme has a tenure of 8 years. However, one can exit from these bonds after 5 years from the date of subscription on interest dates.
These Sovereign Gold Bonds are issued in denominations of 1 gram of gold and in multiples of 1 gram.
Minimum investment is equivalent to 1 Gram of gold.
One can buy a maximum quantity of 4 Kg in a financial year, i.e. April to March period.
You can get a loan against the bonds as collateral from banks.
How to withdraw Sovereign Gold Bonds before maturity?
These gold bonds have a lock in period of 8 years. However, one can do premature withdrawal after completion of 5 years, but before maturity period that would be on interest payment dates. If your interest payment date is 30th June, you can withdraw after 5 years and on 30th June or 31st December.
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Taxation of Sovereign Gold Bond Scheme
If you are investing in these gold bonds, there would be tax implication in 3 ways.
1) Tax on Interest received – While you would get 2.5% interest per annum on these bonds, this is not tax free. You need to club this interest received with your total income every year and pay income tax based on your applicable income tax slab applicable for that year.
2) Capital Gains on selling / redemption of bonds: Since you an apply the thru demat form, you an sell them on stock exchanges. These bonds are exempted from capital gain arising from selling such bonds. Means, whatever capital gains you would get while selling on stock exchanges or at the time of redemption (apart from interest) are tax free.
3) Capital gains on transfer: Long term capital would be computed for transfer of these bonds to any other person based on indexation benefits. Means, if it is gifted/transferred, the person getting it need to pay capital gains tax.
How the maturity amount is calculated for these gold bonds?
Since you are buying these bonds in grams of gold, on maturity, based on gold rate, equivalent amount would be paid to you. E.g. you would have bought 10 Grams of gold. The average prices of gold on maturity (during the previous week of maturity date) assume is Rs 5,000 per gram, you would get Rs 50,000.
How to apply for Sovereign Gold Bonds Issue?
The Bonds will be sold through Scheduled Commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges i.e. NSE/BSE.
I would recommend you to buy through demat form so that everything is online.
Who is eligible to invest in Gold Bond Scheme?
The following are eligible to invest.
1) Resident Indians
2) Corporates / Companies registered in India
3) HUFs / Partnership Firms
Non Resident Indians (NRIs) are not eligible to apply.
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Who can invest in Sovereign Gold Bond Issue?
Like I said earlier, please ask below questions and you have the ready made answer:
1) What is your purpose of investing in such gold? If you are looking for price appreciation in the future and for long term investment purpose, then you may rethink about your decision. Except for the gold price increase in the last 1 – 1.5 years, the gold price has not appreciated much in the last 3-5 years. Better to go for some of the balanced mutual fund schemes which can give you 12% to 15% annualized returns though not guaranteed.
2) Are you planning to accumulate gold for utilizing them in future. This could be for gifting ornaments to your spouse or accumulating gold for daughter’s marriage. If your answer is yes, indeed it’s one of the best investment options. No one can predict the gold rates in future. Hence, investing small amounts in such gold schemes can help you to accumulate gold grams over a period of time. E.g. you want to accumulate 500 grams gold for your daughter’s marriage in next 10 years, you can invest 50 grams gold in this scheme every year. By the end of 10 years, no matter what the gold price is, you are able to accumulate 500 grams along + earn some marginal interest rate too.
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>>> The sovereign gold bond scheme has a tenure of 8 years.
Question : Is this 8 years starts from 1st purchase? (or) Every purchase need to wait for 8 years?? Please clarify.
Each purchase is separate transaction. Hence 8 years tenure is applicable to each and every transaction.
Hi, Thanks for the insight of gold bond schemes.
Just wondering about the premature withdrawal. If I invest in these bond, they have lockin period of 8 years and would be able to with draw after 5 years. But will never be able to withdraw anything before 5 years. Am I right ?
Thats correct. However these are tradeable on stock exchanges, hence you can sell them on BSE/NSE (if there are buyers) and the price at which it might be trading.