Paper Gold Vs. Yellow Gold-  What is the right choice for smart investors?

Are you considering investing in gold? If so, Sovereign Gold Bonds (SGBs) could be the perfect avenue for you. These government securities denominated in grams of gold offer a range of benefits that make them an attractive investment option. Let’s dive into why SGBs might be the right choice for you.

Paper Gold Vs. Yellow Gold

1. Held as Gold bonds Vs. Physical gold in coins, jewelry
2. Earn 2.5 % interest (paid semi-annually) in Paper Gold Vs. No interest in Yellow Gold
3. Capital Gains tax exempt at the end of 8 years for Paper gold, while local taxes apply for sale of physical gold.
4. Paper Gold is secure as held online Vs. Yellow gold has to be kept in a locker.
5. Clear Joint Ownership in Paper Gold Vs. Unclear ownership in Yellow Gold.

1. What is a Sovereign Gold Bond (SGB)? Who is the issuer?

SGBs are government securities issued by the Reserve Bank of India on behalf of the Government of India. Denominated in grams of gold, these bonds provide a convenient and secure way to invest in gold without the need for physical possession. These bonds are commonly referred to as paper gold whereas the physical gold i.e., yellow gold is in the form of coins or jewelry. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by the Reserve Bank of India on behalf of the Government of India.

2. Why should I buy SGB rather than physical (Yellow) gold? What are the benefits?

Investing in SGBs comes with several advantages. Firstly, the quantity of gold you pay for is protected, as you receive the ongoing market price at the time of redemption. Unlike physical gold, SGBs eliminate the risks and costs associated with storage, making them a hassle-free investment. Additionally, you are assured of the market value of gold at the time of maturity and receive periodic interest, all while avoiding issues like making charges and concerns about purity. 

3. What are the tax implications of Paper Gold on (i) interest and (ii) capital gains?

Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.

4. Is tax deducted at source (TDS) applicable on the bond?

TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.

5. Are there any risks in investing in SGBs?

While there is a risk of capital loss if the market price of gold declines, it’s important to note that investors do not lose in terms of the units of gold they have paid for.

6. Who is eligible to invest in the SGBs?

Individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions that are residents in India are eligible to invest in SGBs. Even individuals who change their residential status from resident to non-resident can continue to hold SGBs until early redemption or maturity.

7. Whether joint holding will be allowed?

Yes, joint holding is allowed, providing flexibility for families and groups of investors.

8. Can a Minor invest in SGB?

Yes, minors can invest, and the application must be made by their guardian.

9. Where can investors get the application form?

Application forms are available at issuing banks, SHCIL offices, designated post offices, and agents. They can also be downloaded from the RBI’s website, and some banks may offer online application facilities.

10. What are the Know-Your-Customer (KYC) norms?

Every application must be accompanied by the investor’s PAN number issued by the Income Tax Department.

11. Can an investor hold more than one investor ID for subscribing to the Sovereign Gold Bond?

No, an investor can have only one unique investor ID linked to any prescribed identification document.

12. What is the minimum and maximum limit for investment?

Bonds are issued in denominations of one gram of gold, with a minimum investment of one gram and a maximum limit of subscription varying for individuals, HUFs, and trusts. The annual ceiling includes bonds subscribed under different tranches during the fiscal year.

13. Can each member of my family buy 4Kg in their own name?

Yes, each family member can buy bonds in their own name if they meet the eligibility criteria.

14. What is the rate of interest and how will the interest be paid?

The Bonds bear interest at a fixed rate of 2.50 per cent per annum, credited semi-annually to the investor’s bank account.

15. Who are the authorized agencies selling the SGBs?

Bonds are sold through offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and authorized stock exchanges.

16. If I apply, am I assured of allotment?

If you meet the eligibility criteria, produce a valid identification document, and remit the application money on time, you will receive the allotment.

17. When will the customers be issued a Holding Certificate?

Customers will be issued a Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI on email, if email address is provided in the application form

18. Can I apply online?

Yes, customers can apply online through the website of RBI listed scheduled commercial banks, enjoying a discounted issue price when applying online. Visit www.rbi.org.in for more information.

19. At what price are the bonds sold?

The nominal value of Gold Bonds is fixed based on the simple average of the closing price of gold for the last three business days before the subscription period.Check with your Bank for further details.

20. Will RBI publish the rate of gold applicable every day?

The price of gold for the relevant tranche will be published on the RBI website two days before the issue opens.

21. What will I get on redemption?

On maturity, the Gold Bonds shall be redeemed in Indian Rupees, based on the simple average of the closing price of gold of 999 purity of the previous three business days. 

22. How will I get the redemption amount?

Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.

23. What are the procedures involved during redemption?

Investors will be advised one month before maturity, and on the date of maturity, the maturity proceeds will be credited to the bank account on record.

24. Can I encash the bond anytime I want? Is premature redemption allowed?

Premature redemption is allowed after the fifth year from the date of issue on coupon payment dates. The bond will be tradable on exchanges if held in demat form.

25. What do I have to do if I want to exit my investment?

In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date.

26. Can I gift the bonds to a relative or friend on some occasion?

Yes, the bonds can be gifted/transferable to a relative/friend/anyone who fulfills the eligibility criteria.

27. Can I use these securities as collateral for loans?

Yes, these securities are eligible to be used as collateral for loans from banks, financial institutions, and Non-Banking Financial Companies (NBFC).

28. What are the tax implications on i) interest and ii) capital gain?

Interest on the Bonds will be taxable, but capital gains tax on redemption has been exempted. Indexation benefits will be provided for long-term capital gains.

29. Who will provide other customer services to the investors after issuance of the bonds?

The issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents will provide customer services such as change of address, early redemption, nomination, grievance redressal, and transfer applications.

30. What are the payment options for investing in the Sovereign Gold Bonds?

Payment can be made through cash (up to ₹20,000), cheques, demand draft, or electronic fund transfer.

31. Whether nomination facility is available for these investments?

Yes, a nomination facility is available as per the provisions of the Government Securities Act 2006 and Government Securities Regulations, 2007.

32. Can I get the bonds in demat form?

Yes, the bonds can be held in a demat account, and the facility for conversion to demat will be available after allotment.

33. Can I trade these bonds?

Yes, the bonds are tradable from a date notified by RBI, and they can be sold and transferred as per provisions of Government Securities Act, 2006.

34. What is the procedure to be followed in the eventuality of death of an investor?

The nominee/nominees to the bond may approach the respective Receiving Office with their claim, and the claim of the nominee/nominees will be recognized as per the provisions of the Government Securities Act, 2006.

35. How do I contact the RBI to address my queries regarding Sovereign Gold Bond ?

 A dedicated e-mail has been created by the Reserve Bank of India to receive queries from members of the public on Sovereign Gold Bonds. Investors can mail their queries to this email id.

Investing in Sovereign Gold Bonds not only provides a secure and hassle-free way to own gold but also comes with additional benefits like regular interest payments, tax exemptions, and flexibility in managing your investment. So, if you’re looking to add gold to your investment portfolio, consider the advantages that Sovereign Gold Bonds bring to the table. Please visit www.rbi.org for more up-to-date information.

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