The Sovereign Gold Bond (SGB) Scheme is a financial product introduced by the Government of India as an alternative to purchasing physical gold. Issued by the Reserve Bank of India (RBI) on behalf of the government, these bonds are denominated in grams of gold, with a minimum investment requirement of 1 gram. The tenure of the bonds is 8 years, with an option for early exit after the 5th year on interest payment dates. They offer a fixed interest rate, typically around 2.5% per annum, which is paid semi-annually. Upon redemption, the price is linked to the prevailing market price of gold, allowing investors to benefit from any appreciation in gold prices.
One of the key advantages of Sovereign Gold Bond is the tax benefits; the capital gains tax arising on redemption is exempted for individual investors, although the interest earned is taxable according to the investor's income tax slab. Additionally, these bonds eliminate the risks and costs associated with physical gold, such as storage and theft, as they are held in electronic form. SGBs are government-backed, carrying low credit risk, and are tradable on stock exchanges, providing liquidity to investors. They can also be used as collateral for loans, adding to their versatility. The government opens specific subscription windows during the financial year, allowing investors to purchase these bonds, thereby reducing the demand for physical gold and promoting financial savings through a secure and convenient investment alternative.
