Investors in the first tranche of sovereign gold bonds (SGBs) that are coming up for maturity have struck gold. When the issue matures on November 30, investors would have made 10.88 percent CAGR returns.
As per a recent Reserve Bank of India (RBI) notification, the price for the final redemption would be Rs 6,132 per unit of SGB, which is based on the simple average closing price of gold for the week of November 20-24, 2023.
The first tranche was issued at a price of Rs 2,684 per gram in 2015.
Also read | Where to invest Rs 10 lakh today? Trust Mutual Fund’s Sandeep Bagla has a 5-year plan
On top of this, these bonds also gave an interest at the rate of 2.75 percent (fixed rate) per annum. This fixed coupon was revised to 2.5 percent in later issues of sovereign gold bonds.
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. The bond is issued by the Reserve Bank on behalf of the Government of India.
Also read | Five things to consider before you opt for premature withdrawal from sovereign gold bonds
Notably, early encashment or redemption of the bond 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, and can also be transferred to any other eligible investor.
The gold bonds are repayable on the expiration of eight years from the date of the issue. Notably, the first tranche of bonds initially was slated to be issued on November 26, 2015, but was postponed to the last day of November.
Interest earned
The quantity of gold for which the investor pays is protected, since he or she receives the ongoing market price at the time of redemption/ premature redemption. Therefore, investors are assured of the market value of gold at the time of maturity.
Further, SGB is free from issues such as making charges and purity in the case of gold in jewellery form.
Also read | Budget@10: Tax compliance improves, but process glitches remain
Further, SGBs also bear a fixed rate of interest per annum on the amount of initial investment. In the initial issues, the bonds gave interest at the rate of 2.75 per cent (fixed rate) per annum. This interest is paid in half-yearly rests.
However, this rate is not fixed and may vary from time to time at the discretion of the government. Currently, the gold bond scheme interest rate stands at 2.50 percent and that is the level it has been static at for quite some time.
About SGBs
Gold bonds have no costs associated with them. For long-term investors, SGBs are more attractive than gold mutual funds. If you hold the SGB till maturity, then all the profits are exempt from capital gains tax. Interest earned is added to your income and taxed as per your slab rate.
The bonds are issued in denominations of one gram of gold and in multiples thereof.
Minimum investment is one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government.
The latest issue of SGBs -- 2023-2024 Series II -- was launched by RBI on September 11, 2023, and the price was fixed at Rs 5,923 per gram of gold.
The issue price is Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
