Learn about the Sovereign Gold Bond Scheme

By - IndianMoney.com Research Team     16 September 2015

There is a famous sayingThere's something About Gold That Brings Out the Avarice in Men”. Investing in gold and gold jewelry has been an essential part of Indian culture and tradition for centuries. There’s more…Indians never sell their gold and gold jewelry, preferring to pass it on, from generation to generation. Mothers pass on gold jewelry to their daughters, at their time of marriage.

Why the Sovereign Gold Bond Scheme?

Indians love their gold. They show this love by stashing more than 20,000 tonnes of gold and gold jewelry, in cupboards and bank lockers. To feed this greed, the Indian Government imports more than 800-1000 tonnes of gold a year. The Government pays for this gold with Billions of Dollars.

The Government by convincing you to invest in the Sovereign Gold Bond Scheme instead of gold coins and bars can save on importing all that gold.

What is the Sovereign Gold Bond Scheme?

You have to be a resident of India to invest in the Sovereign Gold Bond Scheme. You pay for the Gold Bond in cash. The value of the gold bond is linked to the gold price. These bonds are issued and backed by the Government of India and so are called Sovereign Gold Bonds.

The bonds are denominated in grams of gold. The denominations are 5, 10, 50 and 100 grams of gold.

The maximum amount you can invest in a gold bond is 500 grams per person per year.

The tenure of the gold bond is 5-7 years. You would have to stay invested in the gold bond for the long term to profit from it.

Interest: The Sovereign Gold Bond will pay you interest. You earn interest on the gold.

You can also trade the gold bond on the bond and stock exchanges.

You can pledge the gold bonds as collateral for a loan.

How does the Sovereign Gold Bond Scheme work?

This is simple to understand. Instead of buying 50 grams of gold, you simply invest in a gold bond of 50 grams denomination. At the end of the tenure say 5 years, you get the value of 50 grams of gold, on the day you redeem the bond. You also get interest on the gold bond from the day you invest till the day you redeem the gold bond. This is over and above the amount you get on the day you redeem the bond. On redemption of your gold bond you, get your money in rupees and not gold.

How can you invest in the Sovereign Gold Bond Scheme?

You can invest in the Sovereign Gold Bond Scheme at a bank or a post office.

You will have to fill up the KYC (Know Your Customer) norms, if you make an investment in the gold bond scheme above INR 50,000.

On your/bond holders death, your nominees get the money.

What happens if the price of gold falls at the time of redemption?

You can continue to hold the gold bond for 3 more years.

What about taxation?

The tax treatment for the Sovereign Gold Bond Scheme is the same as for physical gold. You buy a gold bond and sell it at a profit/gain. Your gain is called a capital gain.

If you sell the gold bond in a time period under 3 years for a profit, your gains/profits are called short term capital gains. These gains are added to your taxable salary and you are taxed as per the income tax slab, you fall under.

If you sell the gold bond in a time period over 3 years for a profit, your gains/profits are called long term capital gains. Long term capital gains are taxed at 20% with indexation.

No tax if you redeem the bonds at maturity.

Under : Financial Planning