6 reasons why you should invest in Sovereign Gold Bonds

Written on Monday, November 9, 2015
By Mohit Mittal- AVP & Head Fixed Income, Bajaj Capital Ltd.

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Gold investment has always been full of hassles like risk of impurity, fear of security and other worries. But now, with the introduction of sovereign gold bond scheme, you get to enjoy all the benefits of physical gold without worrying about risks and at the same time you get to earn an assured interest. Only Resident Indian entities including Individuals, HUFs, Trusts, Universities, and Charitable institutions can invest in these Bonds. Interest earned on the investment will get credited to the investor’s account semi- annually. One can start with a minimum subscription of 2 grams and can go up to 500 grams (maximum limit per investor). It is mandatory for investors to provide bank account details to facilitate payment of interest and maturity value which can be redeemed after 8 years from date of issue with a lock in period of 5 years.


1. Earn assured interest per annum


2.75% p.a. assured interest will be paid semi-annually on the invested amount till maturity and the maturity price will be INR (Indian Rupee) on the basis of previous week (Mon-Fri) average closing price of 999 purity gold published by Indian Bullion and Jewelers Association.


2. No TDS applicable


For the investor falling in 10, 20 and 30 percent tax slabs, the post-tax returns would be 2.47 per cent, 2.18 per cent, 1.9 per cent respectively. However, no TDS shall be deducted on the interest income.


3. Loan available on bonds


Sovereign Gold Bonds can be used as collateral for loans. The Loan To Value ratio be set equal to ordinary gold loan mandated by RBI from time to time.


4. Issued by government of India


The Bonds are issued by the Reserve Bank of India on behalf of the Government of India. The bonds are distributed through banks and designated post offices. This should make subscribing to the bonds an easy affair. Additionally it adds a sense of credibility making you worry-free with return risks as they carry sovereign guarantee both on the capital invested and the interest.


5. Ease of investment


Bonds are available in demat and physical mode making it easy for you to invest. Gold Bonds comes with tenure of eight years but investor can redeem prematurely from the beginning of the fifth year on the interest payment dates.


6. No need of lockers to store


As the investment is in demat and paper form, you don’t need bank lockers to secure it, making it a perfect substitute for physical gold.



Note: Issue opens on 5th Nov and closes on 20th Nov 2015. Upside gains and downside risks will be with the investor and the investors will need to be aware of the volatility in gold prices


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