What are Sovereign Gold Bonds (SGBs)?
Sovereign Gold Bonds (SGBs) are bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India that give exposure to gold. They have a fixed tenure of 8 years with a 5-year lock-in period. After the end of the lock-in period, clients can make a premature redemption on interest payment dates. Visit tradingqna.com/t/interest-payment-dates-for-sovereign-gold-bonds-sgbs to learn about SGB interest payment dates.
All SGBs are listed and can be sold in the secondary market just like stocks, but liquidity may be an issue. SGBs are linked to the market price of gold and offer 2.5% annual interest on the issue price. The interest is paid once every 6 months from the date of the issue of the bond, and the last interest is paid on maturity, along with the principal, to the bank account. The date of the issue can be found on the RBI website (WEB). In case of any queries, reach out to CDSL (WEB) or NSDL (WEB) as they act as Registrar and Transfer agents (RTA's) for SGBs.
Differences between SGB, physical gold, gold ETFs and mutual funds, and digital gold
|
|
SGB | Physical gold | Gold ETF and mutual funds | Digital gold |
|
Storage |
No risk. |
Significant risk. |
No risk. |
Unregulated and risky. |
|
Regulated by |
Govt. of India. |
No authority. |
SEBI. |
No authority. |
|
Charges |
No making charges, GST, expense ratio. |
Making charges vary from 8% to 35% of the total gold rate, and GST is applicable. No expense ratio. |
No making charges or GST. However, an expense ratio of up to 1% is applicable. |
No making charges. However, GST of 3% and a commission of 2%-3% are applicable. |
|
Interest
|
Fixed at 2.5% per annum. |
No interest payments. |
No interest payments. |
No interest payments. |
Taxation
| SGB |
If held until maturity, i.e., 8 years or redeemed prematurely after 5 years, there is no capital gains tax. To learn more about premature redemption, see Is it possible to encash the Sovereign Gold Bond (SGB) at any time, including through premature redemption? If sold in the secondary market after a holding period of more than 36 months, LTCG is applicable at 20% with indexation benefits or 10% without indexation.
If sold within 12 months, taxes are applicable as per the tax slab rates. Additionally, interest on SGBs is taxed as per the slab rates.
|
| Physical gold |
Taxed at 20% and a 4% cess on LTCG while selling. |
| Gold ETF and mutual funds |
LTCG is applicable at 20% with indexation benefits on profits after sale if the holdings period is more than 36 months. |
| Digital gold |
Taxed at 20.8%, same as physical and paper gold. |
To learn how to buy SGBs in Zerodha, see How to buy Sovereign Gold Bonds (SGBs)?
Did you know? There are no charges for purchasing SGBs in the primary issue. However, delivery charges will apply if SGBs are bought in the secondary market.
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