Here are 10 things to know about gold bonds
1) Sovereign gold bonds will be issued by the Reserve Bank of India. They will denominated in particular amount of gold and linked to the price of the yellow metal. If the price of gold increases, the value of the bond goes up, benefiting investors.
2) Investors can buy a minimum of 2 units or 2 grams and a maximum at 500 grams per fiscal year. The Reserve Bank has fixed the public issue price at Rs 2,684 per gram for the sovereign gold bonds. This means the minimum investment comes to around Rs 5,400. (Read more)
3) Investors will get a fixed rate of interest of 2.75 per cent per annum (payable every 6 months) on the initial value of investment.
4) The gold bonds would also be available in demat format, so investors will not have to worry about storage unlike physical gold.
5) The bonds have a maturity period of 8 years, with exit option from the fifth year. Holdings can be redeemed in multiples of one gram. The redemption price will be based on prevailing gold prices.
6) The bonds will be listed on the exchanges so investors may get an option to exit even before five years if volumes are good.
7) Gold bonds will be sold through banks and designated post offices. They can be used as collateral for loans from financial Institutions.
8) TDS (tax deducted on source) is not applicable on the interest component, but interest earned on gold bonds will be added to the income and taxed. Capital gains will be taxed at tax slab if these bonds are sold before 3 years. If sold after 3 years, capital gain tax of 20 per cent with indexation benefits would apply. Indexation is a process by which the cost of acquisition is adjusted against inflation in the value of asset.
9) Gold bonds offer an exposure to gold while also offering interest, a feature that is not present in other avenues like ETFs and gold mutual funds or even physical gold, says Suresh Sadagopan, founder of Ladder 7 Financial Services, a Mumbai-based financial advisory firm.
10) Investors should keep their asset allocation in mind before putting their money in gold bonds as gold prices have been on a long term decline, said Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors.
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