Sovereign Gold Bonds (SGBs): Safety, Tenure, Interest Rates, Tax Benefits & Risks

Sovereign Gold Bonds (SGBs) are an investment option in gold that does not require physical ownership. These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India, making them a credible and secure form of investment. However, Sovereign Gold Bonds (SGBs) may not always be the best investment option.

Are Sovereign Gold Bonds (SGBs) safe?

Yes. Since SGBs are issued and fully backed by the Government of India, they carry high credibility and security. This makes them a safer option than physical gold, which can be subject to theft or purity concerns.

However, investors should also consider factors such as tenure and price fluctuations before investing.

What is the tenure of Sovereign Gold Bonds (SGBs)?

  • The minimum tenure is 8 years from the date of issue.
  • Early redemption is allowed only after the 5th year, and only on interest payment dates.
  • This structure makes SGBs unsuitable for short-term investors who may need liquidity within a few years.

Why Sovereign Gold Bonds (SGBs) may not be the best investment option

  • Long holding period: An 8-year term is standard, with redemption permitted after 5 years only on interest payment dates.
  • Limited liquidity: While tradable on stock exchanges, trading volumes can be low.
  • Price risk: The bond value is linked to international gold prices, which can fluctuate.
  • Opportunity cost: Other investments may offer higher returns over shorter durations.

Are there any making charges or GST on SGBs?

No. Unlike physical gold, there are no making charges or GST when buying or selling Sovereign Gold Bonds. This makes them more cost-effective than jewelry or coins.

What interest is paid on Sovereign Gold Bonds (SGBs)?

  • SGBs offer a fixed interest rate of 2.5% per annum on the issue price.
  • Interest is paid semi-annually directly to your bank account.
  • This interest is taxable, but capital gains on redemption at maturity are exempt from tax for individuals.

Additional benefits of SGBs

  • Collateral for loans: SGBs can be used as collateral, similar to gold loans.
  • No storage hassles: No risk of theft or storage costs, unlike physical gold.
  • Tax advantage: Long-term capital gains on redemption at maturity are tax-free for individuals.
  • Government-backed security: Offers greater confidence compared to private gold schemes.