SGB
What Are SGBs or Sovereign Gold Bonds?
Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India, denominated in grams of gold. Instead of buying physical gold, investors buy SGBs, which provide returns linked to the price of gold, along with a fixed interest income.
In simple terms: SGB = Digital Gold + Fixed Interest + Government Guarantee.
Key Features of SGBs
- Denomination: Minimum investment = 1 gram of gold.
- Tenure: 8 years (with an exit option after the 5th year on interest payment dates).
- Interest: 2.5% per annum (paid semi-annually) on the initial investment, over and above gold price returns.
- Mode: Can be held in demat or physical certificate form.
- Redemption: At maturity, you get the market value of gold (equivalent money, not physical gold).
Advantages of SGBs
- Safe Investment
- Backed by the Government of India.
- No risks of theft, purity issues, or storage costs like physical gold.
- Extra Income
- Earns 2.5% fixed interest annually, in addition to gold price appreciation.
- Tax Benefits
- No capital gains tax on redemption at maturity.
- Cost-Efficient
- No making charges or storage costs (unlike jewelry or coins).
- Collateral Margin
- SGBs can be pledged as security to avail Trading Margin.
Disadvantages of SGBs
- Lock-In Period
- 8-year tenure with exit only allowed after 5 years.
- Liquidity Issues
- Although tradable on exchanges, secondary market volumes are low.
- Fixed Interest Limitation
- The 2.5% interest may not beat inflation, making it less attractive compared to equities.
