What are Sovereign Gold Bonds?

Are you looking for a safe and secure way to invest in gold? Look no further than Sovereign Gold Bonds! These bonds provide a unique opportunity to own gold without the hassle of physical storage. In this blog post, we will dive into the benefits of investing in Sovereign Gold Bonds and how they can be a valuable addition to your investment portfolio. So grab your coffee and let’s get started!

What are Sovereign Gold Bonds?

Sovereign gold bonds are RBI-mandated certificates issued in exchange for grams of gold, allowing individuals to invest in gold without the worry of keeping their physical asset safe. Individuals prefer sovereign gold bonds as a safe investment vehicle since gold prices are less volatile. Gold prices tend to climb dramatically over time due to its popularity and extensive demand, making it a highly promising investment route.

Because these bonds are issued by the RBI under Government of India stocks, a certain window for subscription is pre-set. During which a sovereign gold bond plan is issued in tranches in the names of investors.

In general, the RBI announces the issuance of the most recent sovereign bonds in a press release every 2-3 months. With a one-week window during which individuals can subscribe to this scheme. When a sovereign gold bond is successfully purchased, a holding certificate is issued in the name of the investor.

Features of Sovereign Gold Bonds

Following the features of SDGs:

Updated Price

The values of a sovereign gold bond 2020 are derived using a simple average of the latest three days’ closing prices of 999 pure gold set by the Indian Bullion and Jewellers Association Limited (IBJA).

Periodic interest pay-outs

The sovereign gold bond plan has a yield rate of 2.5% per year and pays out to investors every six months.

Fixed Tenor

Gold bonds are issued for an eight-year term, with early withdrawal permitted beginning in the fifth year. Individuals can also sell their securities in the secondary market at the gold market rate.

Premature withdrawal Individuals willing to cash in

their investment can do so following a statutory 5-year holding period. This payout benefit is available for the fifth, sixth, and seventh years of bond tenor and will be processed on interest disbursement days.


According to a notice made by the RBI, the Sovereign gold bond scheme 2020 can be exchanged in the secondary market 14 days following the first subscription date. The prices at which these bonds are traded are determined by the current gold price on the specified date. As well as the related demand and supply in the stock market. As a result, for stock market transactions, a holding certificate must be digitised and held in a Demat account of an entity.

Quantity of Subscription

Subscriptions are to be made in kilos of gold in Sovereign bonds. Individuals and Hindu Undivided Families must make a minimum investment equal to the price of one gramme of gold, with a maximum limit of four kilogrammes of gold (HUF). The top limit for businesses and trusts is established at 20kg.

When a sovereign bond matures, distributions are made in accordance with the prevailing gold price, which is derived by taking a simple average of the price of gold over the previous three days and is announced by the IBJA. Individuals can experience tremendous wealth building with minimum risk exposure because the price of gold tends to appreciate significantly over time.

Sovereign Gold Bonds
Sovereign Gold Bonds

Advantages of Investing in Sovereign Gold Bonds

Following are some advantages of investing in Sovereign Gold Bonds:

Low Risk

The Reserve Bank of India issues sovereign gold bonds on behalf of the central government in compliance with the Government Security Act of 2006. Because of this government backing, sovereign gold bonds are one of the safest types of investment accessible in India, with no risk of repayment default. Any risk connected with such investments can be attributable to market changes, which cause gold prices to fluctuate.


The central government issued sovereign gold bonds as part of the gold monetisation scheme in November 2015. The major goal of such treasury bonds was to alleviate the complications associated with gold investments, as bullions and other tangible forms of investment required suitable and secure storage.

Investors who purchase a gold bond are given a holding certificate as a declaration of their investment, which serves as proof of the transaction. People can also choose to digitise such holding certificates in order to use them in their Demat accounts, further increasing the security of their investment.

Capital Appreciation

The profits on sovereign gold bonds are large because the price of this precious metal tends to climb over time. During periods of stock market upheaval, investors tend to go towards gold. Which has the potential to hold its value even when large functional corporations perform poorly.

Furthermore, because gold is one of the most popular precious metals due to its extensive use. Market demand remains reasonably stable regardless of market fluctuations or global economic conditions. As a result, unsystematic risks generating chaotic swings in gold’s intrinsic value are small, allowing investment corpus to grow exponentially over time.

Hedge against inflation

As previously indicated, gold prices have shown significant capital appreciation. The growth rates of such assets are far higher than the country’s current inflation rates. Making them essential as an investment route. As a result, individuals can benefit from increases in the real worth of their investment portfolio. Allowing them to acquire significant wealth over time.

Long term investment

The sovereign gold bond plan 2020 has an 8-year holding period. This is appropriate for individuals seeking a long-term investment programme that generates significant capital profits while also providing corpus security.

Loan facility

Sovereign gold bonds are a valid type of collateral for lending. According to the RBI’s LTV regulation, any scheduled financial institution can lend up to 75% of the market value of such bonds.

Limitations of Gold bonds

Inversely related to stock market

Gold prices have an inverse relationship with the stock market, with every increase in stock market returns being followed by a decrease in gold prices. During an economic boom, investors are enthusiastic about the stock market because they expect corporations to do well in response to rising aggregate demand. As a result, demand for gold bonds diminishes, causing market prices to fall.

As a result, gold prices tend to be lower during the business cycle’s upswing.

Susceptible to currency fluctuations

Any change in currency values tends to affect the price at which gold is traded. Gold prices fall as the US dollar, the benchmark currency, rises due to increasing inflation rates. When a country’s import bills grow dramatically, the total investment level of the country lowers, affecting gold demand and prices.

Taxation Rules

Sovereign gold bond returns are grouped into two types: capital gains gained at bond maturity and semi-annual interest earnings. Investors who hold a bond for the whole term are exempt from paying long-term capital gains tax. Periodical interest income, on the other hand, is taxed under ‘Income from other sources’. It is taxed at the rates set by the federal government.

Persons who want to resell a bond in the secondary market must pay tax on any capital gains realised. Resale before the end of three years generates short-term capital gains on total earnings at rates determined by the investor’s annual income. Long-term capital gains, on the other hand, are taxed at a rate of 20% of total profits after indexation.

The bottom line

The bottom line is that Sovereign Gold Bonds are a great way to invest in gold without having to worry about storage or transportation. They also offer a higher interest rate than most other forms of gold investment. Making them a wise choice for those looking to maximize their return on investment.

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