Sovereign Gold Bonds Open For Subscription Till Friday. Should You Buy?

The interest on gold bonds is taxable. However, the capital gains arising out of redemption are exempted for individual investors.

Sovereign Gold Bonds Open For Subscription Till Friday. Should You Buy?

Sovereign Gold Bonds: An interest rate of 2.5% per annum is applicable on the gold-linked bonds

The Sovereign Gold Bond programme opened for subscription on Monday. This is the sixth instalment of the government-run gold bond scheme this financial year. Under the sixth series of the Sovereign Gold Bond 2020-21, bonds linked to the market price of gold can be purchased at an issue price of Rs 5,117 per unit. Each unit of the gold bonds, issued by the Reserve Bank of India on behalf of government, is equivalent to one gram of gold. The sixth tranche of the gold bond programme comes at a time when gold rates have receded about 8 per cent from their all-time highs, registered this month. (Track Current Gold Rates Here)

(Also Read: How Gold Bond Issue Price Is Calculated)

Here are five important details to know about the government-run gold bond programme: 

1. Dates

The 2020-21 edition of the gold bonds, the sixth tranche of which opened for subscription on August 31, are available on all days till Friday, September 4. 

2. Lock-In Period

Bonds under the SGB scheme have a maturity period of eight years. In other words, your investment in the gold bonds, often touted as an effective way of parking funds in non-physical gold by wealth planners, is locked in for eight years after investment.

However, that doesn't mean you can't liquidate your investment before eight years. An exit option, subject to certain conditions, is available after the first five years.

3. How To Buy

Resident individuals, trusts, universities and charitable institutions can purchase Sovereign Gold Bonds subject to certain investment limits. Individuals can purchase units equivalent to a minimum of one gram and maximum of four kilograms in a financial year.

The bonds can be bought from stock exchanges BSE and NSE, the Stock Holding Corporation, and designated branches of India Post.   

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4. Interest Rate And Discount

An interest rate of 2.5 per cent, payable semi-annually, is applicable to gold bonds. This means, besides a gold-linked return, investors also get an additional return on their funds. However, the interest is taxable, though the capital gains arising out of redemption are exempted for individual investors.

Online subscribers paying through the digital mode get a discount of Rs 50 per unit. 

5. Should You Buy?

With the uncertainty around the coronavirus situation, gold is poised for higher levels ahead, say analysts. (Also Read: Gold's "Dream Run" May Continue, Say Analysts

"Sovereign Gold Bonds are one of the best investment options in gold for long-term investments and can be a good opportunity to invest for those investors who have little or no exposure to gold," Rahul Agarwal, director of financial services firm Wealth Discovery, told NDTV.

"It adds to the diversification and hedging aspect of a portfolio. It is always recommended that investors should have at-least have a 10-15 per cent exposure to gold in their overall investments at any given time," he said.