Top Benefits of Sovereign Gold Bonds Every Investor Should Know

Sovereign Gold Bonds (SGB) are a secure investment option issued by the Reserve Bank of India on behalf of the Indian Government. They offer various benefits, such as inflation protection, SGB tax exemption, fixed interest income and so on. Explore the benefits of sovereign gold bonds in detail to make informed choices about safe financial investments.

Benefits of Sovereign Gold Bonds

Here are the benefits of the sovereign gold bond scheme:

1. Payment of Interest

The Government of India offers a fixed interest rate on sovereign gold bonds, payable every 6 months to the investor. Regardless of whether the gold price rises or falls, you will receive the interest guaranteed by the government, making it one of the key sovereign gold bond benefits.

1. Paper and Demat Format

One of the gold bond benefits include its availability in paper and demat format. It eliminates the need to store physical gold at additional costs. You will receive a certificate for your investment, wherein there is no risk of theft or no annual storage fee associated with bank lockers.

1. SGB Tax Benefits

TDS (Tax Deductible at Source) does not apply to interest earned from sovereign gold bonds. Further, capital gain tax does not apply if you redeem the bond after maturity. However, the income from sovereign gold bonds is taxable based on your income tax slab. For that, you can avail tax deductions under Section 80C of the Income Tax Act. 

1. Hassle-free

Investing in sovereign gold bonds is hassle-free and convenient. You can invest in these bonds to diversify your portfolio wherein you get the opportunity to invest in pure gold of 99.5%.

1. Tradability

You can trade your sovereign gold bonds within 15 days from issuance on the stock exchanges as per RBI guidelines. As you can buy or sell these bonds in the secondary market, these are highly liquid. Notably, based on the price movement of sovereign gold bonds, you can earn profits in the secondary market.

1. Transferability

The Government Securities Act allows ownership transfer of sovereign gold bonds. For instance, the government allows you to give these bonds to family members as a financial instrument. It enhances the opportunity for wealth management. 

1. Low Risk

Sovereign gold bonds are issued as per the Government Security Act, 2006 by the Reserve Bank of India on the Central Government's behalf. Thus, gold bond benefits include the sovereign guarantee and security. This further eliminates the chances of zero repayments. 

1. Capital Appreciation

The price of gold tends to increase over the long term. As a result, investors usually invest their money in this metal during stock market fluctuations. Despite global economic scenarios, the demand for gold is likely to rise in the long run. Thus, the benefits of sovereign gold bonds include capital appreciation opportunities. 

1. Hedge Against Inflation

Gold prices tend to increase over time due to capital appreciation, often exceeding inflation rates. This makes Sovereign Gold Bonds a good way to protect against inflation while helping investors diversify their portfolios, grow their wealth and build long-term savings.

1. Loan Facility

You can use your sovereign gold bonds as collateral to avail loans. The government allows you to avail up to 75% of the market value of your gold bond as a loan. Thus, based on RBI guidelines, you can seamlessly manage your finances with a loan against sovereign gold bonds.

1. Long Term Investment

Sovereign Gold Bond Scheme 2020 has a holding period of 8 years. If you are looking for a long-term investment option then this can be the ideal option for capital gains with secured corpus growth. 

1. Market-linked Returns

Gold market prices are directly associated with the price of sovereign gold bonds. As a result, investors can enjoy market-linked returns on their sovereign gold bond investments. This helps you earn higher returns than other secured investments. 

Process of Investing in Sovereign Gold Bonds

Here is a guide on how gold bonds work you need to follow in order to reap the benefits of sovereign gold bonds:

Step 1: Application

You can apply for sovereign gold bonds through scheduled commercial banks, post offices (if designated), stock exchanges such as BSE and NSE and Stick Holding Corporation of India (SHCIL). Thus, you can access these bonds seamlessly through a wide range of options. 

Step 2: Documentation

One of the benefits of sovereign gold bonds includes an easy documentation process. Ensure you submit the relevant documents along with the application form provided you understand the terms and conditions of the application. 

Step 3: Payment

You can use multiple payment modes to invest in gold bonds. Using digital transaction mode enables you to avail a discount on the issue price of these bonds.

Step 4: Issue Price

The Indian Bullion and Jewellers Association (IBJA) publishes the closing price of 999 pure gold. If you invest in gold bonds, the issue price is determined based on the closing price of gold. 

Step 5: Tenure and Exit

Usually, gold bonds have a tenure of 8 years for maturity. However, you can exit from the invested bond after the fifth year on the interest payable date. This makes your gold bond investment a flexible option for wealth accumulation. 

Disadvantages of Sovereign Gold Bonds

Knowing the limitations of gold bonds can help you make informed investment decisions. Here are the limitations which, however, do not restrict the advantages of gold bonds:

1. Maturity

As gold bonds usually have a maturity period of 8 years, investors might find it challenging. However, the long tenure is beneficial for wealth multiplication considering gold price volatility. Notably, you can redeem your gold bonds after 5 years from the investment date making it an advantage of investing in the secured financial instrument.

1. Capital Loss and Currency Fluctuations

Due to currency fluctuations in the international market, gold prices are volatile. However, if you stay invested for a long tenure, the risk of price volatility is minimised due to capital appreciation. Notably, currency fluctuations include changes in the US dollar, which is the benchmark currency, and import expenses of your country. Nevertheless, in the long term, gold prices can potentially act as a hedge against prevailing inflation rates in the economy. 

Final Word

The benefits of sovereign gold bonds include capital appreciation, loan facility, market-linked returns, low risk, transferability, easy liquidity and tradability, hedge against inflation, no TDS deduction, charge-free and safe storage, fixed interest payment and seamless investment process. 

If you wish to invest in a secure instrument, sovereign gold bonds in India can be an excellent choice. Download the Stable Money app now to know more about bond investment!