Sovereign Gold Bonds 2020-21 is released by the Reserve bank of India. The Sovereign Gold Bonds 2020-21 is divided into six tranches from April 2020 to September 2020. Sovereign Gold Bond (SGB) is turning out to be one of the best ways to invest in gold. Under the scheme of Gold Bond, a bond will be issued to investors in the paper or demat form. The return will be directly linked to the gold price.
Gold yellow shining metal always acts as an effective hedge against any downside risk. The gold price is peaking and touching a new height every day. It seems that year 2020 would be a very good year for the gold investor. The gold price is expected to touch Rs.50000 per 10 grams. The increase in gold price is mainly due to COVID 19 outbreak. The entire world is facing lockdown condition and the economy is moving towards recession. The stock market and debt market is going down. In this condition, gold turns out to be a good investment option.
If you have surplus cash, you should allocate some portion of your investment portfolio to gold. Buying gold in physical form is perhaps not possible due to the Corona Virus Lockdown condition. However, you can consider buying Gold online as a Sovereign Gold Bond, Gold ETF, or Digital Gold. In this post, we will take a look at Sovereign Gold Bonds.
Also Read – Top 5 Gold ETF in India 2020 – up to 50% returns in last 5 years
What is Sovereign Gold Bonds?
Sovereign Gold Bonds is a Gold Monetization scheme launched by the Government of India. This scheme was launched in 2015. Under SGB, a gold bond is issued in paper or demat form. The return here is linked to the gold price. Along with market-linked gold price return you will get additional interest. The rate of return and tranche is announced by the government every year. This year SGB will be issued in six tranches from April 2020 to September 2020. The proposed calendar of SGB for subscription is given below.
| S. No. | Tranche | Date of Subscription | Date of Issue |
| 1. | 2020-21 Series I | April 20-24, 2020 | April 28, 2020 |
| 2. | 2020-21 Series II | May 11-15, 2020 | May 19, 2020 |
| 3. | 2020-21 Series III | June 08-12, 2020 | June 16, 2020 |
| 4. | 2020-21 Series IV | July 06-10, 2020 | July 14, 2020 |
| 5. | 2020-21 Series V | August 03-07, 2020 | August 11, 2020 |
| 6. | 2020-21 Series VI | Aug. 31-Sept.04, 2020 | September 08, 2020 |
How do Sovereign Gold Bonds Works?
To know how SGB works, let’s take one example.
- Suppose you purchase 10 units of sovereign gold bonds or 10 SGB. Each SGB is equal to 1gm of gold.
- You will get interest on the total purchase amount.
- At the time of maturity/redemption, you will get price equal to the market price of gold.
Say, at the time of purchasing SGB price of gold was Rs.4500 per gram. This means for 10 SGB you invested Rs.45000. At the time of redemption or maturity, if the gold price is Rs.6000 per gram, you will get Rs.60000.
In addition to the redemption amount, you will also get interest on the invested amount. The interest amount is 2.5% per annum. The interest amount is paid till the time of maturity or redemption of gold bonds.
Key Features of SGB
- The investment in this scheme is permissible only to the Resident Individual, HUF and Trust.
- NRI cannot invest in this scheme.
- The minimum subscription is 1 Bond (1 gm of gold).
- The maximum permissible subscription is 4000 SGB (4 Kg of Gold).
- The bond maturity period is 8 years. Early redemption of the bond is allowed after 5th year from the date of issue.
- The bond is listed and tradable on the BSE and NSE.
- Interest income of 2.5% per annum is payable on SGB invested amount. The amount is paid every six months.
- At the time of maturity, your investment will be redeemed at the market price of gold. You will not get physical gold.
- You can take loan against purchased SGB.
- The entire scheme is launched and backed by the government. So, credit risk is low.
- The SGB units can be purchased online with a click of a button.
How to Invest in SGB Online?
It is very easy to invest in the Sovereign gold bond online. The facility of investing in SGB is available at almost every commercial bank. The investment can be done via Internet banking or via demat account.
Internet Banking – ICICI Bank
A step by step method for applying Sovereign Gold Bond online at ICICI Bank is given below. You can use a similar method for applying of SGB at other banks.
- Login to your ICICI Online Internet banking account using user id and password.
- In the navigation bar, you will find Investment and Insurance section. Click on Invest online under this section.
- Here you will find option to Invest in SGB. Click on Invest Now button.
- You will be prompted to enter number of Units. Once you enter Units system will calculate total investment amount.
- Now you need to enter your DP ID and DP Client ID, if you want to hold bond in Demat Form.
- Input your personal details including date of birth, PAN Number and Click on submit button.
- You will be taken to payment page. Once you make payment, system will show confirmation message. The Units will be credited in your DP account shortly.
Demat Account
For Demat Account holder buying SGB is very easy. You need to login to your online demat account. You will find link of buying bond in the FD/Bond section. Fill up the online form and make the payment online. The units will be credited in your demat account on the issue date.
If you apply for this fund online, you will get discount of Rs.50 per gram.
What are benefits and drawbacks of Investing in Sovereign Gold Bonds?
Benefits
- Assured returns of 2.50% per annum payable half yearly on investment amount.
- The bonds can be used as collateral for loans.
- Secure way of investment as you hold SGBs in the Demat Form.
- No capital gain tax on redemption for the individual investors.
- No additional expense for storage of gold.
- No variance is performance as no expense ratio involved.
- No GST and no making charges unlike in physical gold.
- Tradable on BSE and NSE secondary market.
Drawbacks
- Lock in period of SGB is 5 Years. This means it is suitable of long term only.
- You need to pay tax on the earned interest amount as per tax slab.
- Liquidity is low in SGB.
Should you Invest?
If we compare Sovereign Gold Bonds over other gold investment options, such as Gold ETF or Physical Gold Obviously SGB is more beneficial. However, this option comes with a lock-in period of 5 years. So, this option is advisable only if you have a long term investment goal.
Now, if we analyze the current situation the outbreak of COVID 19 has no evidence of containment yet. The world economy is going towards recession due to lockdown. The stock market and debt market is giving negative or less return. Gold is likely to outperform and likely to give better returns over the long run.
If you have adequate contingency funds and looking for a long term investment option, you should surely consider investing in Sovereign Gold Bonds 2020-21.