Sovereign Gold Bond scheme 2023-24 opens for subscription today — should you apply?

The interest on SGBs will be paid at a fixed rate of 2.50 percent a year, payable semi-annually on the nominal value. The interest shall be paid in half-yearly installments, with the final interest payable along with the principle at maturity.

Under the rules of the Income-tax Act of 1961 (43 of 1961), the interest on the Gold Bond is taxable. The capital gains tax on redemption of these bonds to a person is waived. Long-term capital gains deriving from the transfer of a bond will be eligible for indexation benefits.

"SGBs have become available for investment at a very good time. The outlook of gold is bullish for next few years due to expected weakening of US Dollar which has negative correlation with Gold. Gold appreciates when US Dollar weakens. This has already been playing out since October 2022 and the trend is expected to continue in near future. Also, central bank of emerging countries have been diversifying their reserves from US Dollar and have been buying Gold. This momentum of buying Gold by central banks have become stronger after Ukraine and Russia War," said Dr Mukesh Jindal, Co-Founder of Alpha Capital.

"Investors may consider deploying 5 percent of their portfolio in SGBs. If they are very bullish then then may consider increasing the allocation to 10 percent," Jindal added.

SGBs remain the best way to take exposure to gold due to additional 2.5 percent per annum interest and no capital gains tax. There are no annual recurring expenses while capital gains arising on redemption of the sovereign gold bond scheme would be exempt from tax, said analysts at ICICI Direct.

"If these bonds are sold in the secondary market before maturity, capital gains arising on such transaction will taxed 20 percent with indexation if sold on or after three years and would be subject to marginal tax rate if sold before three years," the note stated.

The popularity of SGB has gained significant prominence in the last few years as investors gained confidence on the ease of investing and additional interest, which SGBs offer.

"The discount of Rs 50 per gram will be available for investors applying online and making payment using digital modes. Investors will get additional interest at the rate of 2.50 percent per annum on the nominal amount. They will continue to have full exposure to gold prices to the extent of amount deposited," the brokerage noted.

Nish Bhatt, Founder & CEO at Millwood Kane International said: “Investment in SGBs has helped the RBI raise over Rs 30,000 crore since its inception in November 2015. Investment in paper, digital gold provides high liquidity, eliminates storage costs, and is easier to sell than physical gold. Investment in SGBs comes with an interest coupon payable semi-annually. Gold prices have gained 18 percent in FY23, around 8 percent this year. Also, SGB has posted double-digit gains since its inception in 2015."

SGBs have a maturity of eight years, but exit options are available in the fifth, sixth, and seventh years, which are exercised on the interest payment dates. And the interest rate, which has been constant since its inception, is 2.5 percent.

The Gold Bonds issued under this scheme can be purchased by a Trust, Hindu Undivided Families (HUFs), Charitable Institution, Universities, or an individual resident in India, in his role as such individual, or on behalf of a minor child, or jointly with any other persons

Gold Bonds will be sold through following channels —

Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL),

Clearing Corporation of India Limited (CCIL),

Designated post offices (as may be notified) and

Recognised stock exchanges either directly or through agents.

Also, payment to buy SGB can be made in cash up to Rs 20, 000 for higher amounts in draft, cheque or electronic banking.