The Sovereign Gold Bond is issued by Reserve Bank on behalf of Government of India which is a type of government securities denominated in grams of gold. They can be thought of as substitutes for possessing physical gold. The buyer have to pay the current price of the amount (in cash) of gold he/she want to purchase and the bonds and it will be redeemed in cash on maturity or when the investor wants.
The SGB scheme also offers a great alternative to holding gold in physical form. The elimination of risks and costs of storage make this scheme a feasible one. At the time of maturity, the buyer can get in return the market value of gold plus periodical interest extra. Also he/she gets rebate from any costs like making charges and quality in the case of gold in jewelry form. The bonds are stored in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
There can be a risk of capital loss if the price of gold goes down in the current market. However, the investor does not lose his/her units of gold paid for.
Any individual resident of India as defined under Foreign Exchange Management Act, 1999 is eligible to invest in SGB. Eligible investors may be any individuals, HUFs, trusts, universities, charitable institutions, etc.
Also, a person below the age of 18 years can also invest in this scheme. His / her guardian has to file application on behalf of the minor.
One can fill application form which can be availed from the issuing banks/designated Post Offices/agents. Also, it can be downloaded from the RBI’s website.
One can invest in the Bonds in denominations of one gram of gold and in multiples thereof. A Minimum investment of two grams and a maximum buying limit of 500 grams per person in a fiscal year (April – March) is allowed.