Sovereign Gold Bond scheme 2022-23: Buy gold at discounted price; is SGB better than physical gold?
Photo : BCCL
What is Sovereign Gold Bond ?
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.
Sovereign Gold Bonds bear 2.50 per cent interest rate per annum on the amount of initial investment, which is credited semi-annually to the bank account of the investor. The last interest will be payable on maturity along with the principal.
SGB price
For example, if an investor is looking to buy one gram of gold through SGB, instead of Rs 5,409, they can purchase the said amount for just Rs 5,359 by paying digitally. The central government in consultation with RBI has decided to allow a discount of Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
SGB vs physical gold
Owning physical gold is one of the most preferred ways of having gold as an investment in Indian households, however, it comes with its own set of risks. But in the case of SGBs, the quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/premature redemption.
The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.
In addition to these factors, Sovereign Gold Bonds are free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
RBI Sovereign Gold Bonds
Sovereign Gold Bonds are issued in denominations of one gram of gold and in multiples thereof. The minimum investment in the SGB shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).