The Sovereign Gold Bond (SGB) Scheme was launched by the Government of India in 2015 to help reduce India’s reliance on gold imports. The scheme aims to shift a part of the estimated 300 tons of physical bars and coins purchased every year for Investment into ‘demat’ gold bonds.
Recent Developments
In December 2022, the Government announced the 13th tranche of the Sovereign Gold Bond Scheme for 2022-23. As per the Reserve Bank of India notification, the issue opened on December 19th, 2022 and will close on December 23rd, 2022.
- The issue price for this tranche has been fixed at Rs. 5,317 per gram of gold.
- This follows the successful issuance of the 12th tranche in November 2022, which witnessed robust response with applications worth Rs 1424 crore. This indicates continued investor appetite for the gold bond scheme.
Key Features
Here are some of the attractive features of the Sovereign Gold Bond scheme:
- Issued by RBI on behalf of Government of India
- Available in demat and paper form
- Tenor of 8 years with exit option after 5 years
- Fixed 2.5% p.a. interest paid semi-annually
- Capital gains tax exempt if held till maturity
- No GST, TDS or capital gains tax on redemption
- Sovereign guarantee on bonds
Benefits
The SGB scheme offers several benefits to investors:
- Provides the safety of sovereign guarantee
- Eliminates storage costs and purity concerns
- Enables easy liquidation and trading within bonds
- Allows hassle-free redemption at current gold prices
- Offers attractive interest rates compared to physical gold
- Exempts tax on capital gains and redemption amount
SGBs offer all the advantages of investing in gold, along with additional benefits.
Eligibility and Investment Limits
Here are the eligibility criteria and investment limits applicable for the Sovereign Gold Bond scheme:
- Eligible for Indian residents, entities and trusts
- Minimum investment of 1 gram with maximum limit of 4kg per person per fiscal
- Additional 4kg allowed for Hindu Undivided Families (HUFs) every fiscal
- No maximum ceiling for joint holders or gift/inheritance transfers
- Bonds can be bought individually or jointly with other entities
NRIs and foreign entities are not permitted to invest in this scheme. The annual ceiling enables increased participation across various investor classes.
Process of Investing
Investing in Sovereign Gold Bonds is quite simple:
- Bonds are issued in tranches periodically
- Investors apply online via RBI website or through banks/brokers
- Payment done through digital channels or cheque/DD
- Bonds issued in demat or paper form as requested
- Secured with recourse to RBI in case of default
Redemption available anytime after 5 years in cash equivalent to gold value or through exchanges if held in demat. The process is designed for ease of investing without paperwork.
Performance and Future Outlook
The Sovereign Gold Bond scheme has witnessed strong investor interest since inception. As per official figures, the scheme has raised around Rs 21,000 crore till mid-2022 through 59 issuances since its inception.
- With high inflation and economic uncertainty, gold is seen as a safe haven asset class in 2023. This may drive further investments into Sovereign Gold Bonds in the coming year.
- The scheme is likely to continue playing a key role in meeting rising domestic demand for gold. The simple yet beneficial design of the SGB scheme has appealed to Indian investors.
- With increased promotion and investor awareness, it can potentially channel a major portion of physical gold investments into financial instruments.
Recent Policy Changes
In the 2022-23 budget speech, the Finance Minister announced that the capital gains tax exemption on redemption proceeds from gold ETFs and bonds would be capped at Rs 1 lakh per year. However, Sovereign Gold Bonds were exempted from this change.
- The RBI also recently permitted scheduled commercial banks to act as agents under the scheme, allowing investors to directly buy bonds from banks.
- These changes are likely to further improve the accessibility and attractiveness of Sovereign Gold Bonds for retail investors across India.
Performance Outlook of 2023
With analysts predicting gold prices to remain elevated in 2023, Sovereign Gold Bonds may offer better returns than physical gold or gold ETFs. Moreover, additional tranches with issue prices linked to near-term averages can make timing of investments more flexible. While global factors will drive gold’s performance, SGBs remain an attractive instrument for long-term gold exposure in domestic portfolios.