Sovereign Gold Bond Scheme- Investment, KYC, Eligibility And Loan
Sovereign Gold Bond Scheme- Investment, KYC, Eligibility And Loan

 

Owning gold is an amazing dream that most of us have, especially considering the value and importance of gold in our everyday lives. This dream often fails to materialize owing to the rising cost and the dwindling demand for gold. However, these market forces would not deter us from investing in gold. Investment in gold is a smart and safe choice because India is one of the top consumers of this precious metal.

 

India is a home to so many people from various backgrounds and religious beliefs such as Jains, Christians, Sikhs, Muslims, and Hindus and there are so many festivities and special occasions that demand the usage of gold. Recently, people have developed interested in gold investment, even though traditionally, Jains and Hindus are predominantly known to buy and gift gold to friends and family members.

 

GOLDEN INVESTMENT OPPORTUNITY

The following are some of the reasons why investing in gold are an excellent decision:

  • Protection against inflation: Whether we like it or not, inflation is part of our economy irrespective of how smart the economy managers claim to work. Almost all the commodities and financial instruments experience inflation at one point or the other. However, gold is highly exceptional. The gold market rarely experiences inflation.
  • Diversification: In order to safeguard your investment portfolio; it is only wise to diversify your investment. Investment in gold is one of the ways to diversify your portfolio. This will insulate you from experiencing market volatility compared to other financial investments like stocks and mutual funds.
  • Demand and supply: Gold is a natural metal which means it is highly exhaustible and it is limited in supply. There is high demand for gold which invariably will make the price to always skyrocket in the market. In India, there is virtually no celebration without gold. Therefore, the Indian gold market is highly lucrative
  • Liquidity: Gold is a liquid asset enriching investors when they need money during emergencies. Since there is a high demand for gold, it is usually easy to sell it.
  • Balances currency devaluation: When there are financial uncertainties, even the strongest currencies can lose it value. These currencies are easily reprinted. But gold is a natural and tangible asset, meaning it cannot be machine reproduce, hence protecting the interest of investors against devaluation.
  • Crisis Commodity: Gold is sometimes regarded as “crisis commodity,” this is because it cannot lose it value despite financial uncertainty. This is exactly why most countries of the world have a gold reserve with a view to combating any uncertainty that may hamper their economies.
  • Simple to own: Buying of gold currently difficult like before. Potential investors can invest in gold via different platforms. Investors can decide to invest in gold either physically like coins, jewelry, bars or through E-Gold, Gold Funds, Gold saving accounts, and Exchange Traded Funds, among others.

 

In India, Investment in gold is more than just an investment in precious metal. In view of the above “golden investment opportunity,” government in their wisdom decided to expand the gold market in order to allow more Indians to participate in gold investment. The Indian government came up with alternatives gold investment schemes like Gold bonds, Gold ETFs, Sovereign gold bond (SGB), etc.

This article will explore the Sovereign gold bond (SGB) scheme, how it operates, eligibility for the scheme, interest rate, risks factor, and how to apply for the scheme. Therefore, sit back and relax as we take you through every bit of what the SGB scheme is all about.

 

WHAT IS SOVEREIGN GOLD BOND SCHEME?

Simply put, the Sovereign Gold Bond scheme is an initiative of the Indian government with a view to creating a different alternative for Indians to own and invest in the gold market. The aim of the SGB scheme is to ensure that the demand for physical gold is drastically reduced. The reduction in the demand for physical gold will keep track of gold import and then use its resources effectively. The Reserve Bank of India (RBI) is primarily responsible for issuing these gold bonds, hence transparency and trust sets in. Also, SGB scheme is an avenue for people to own gold without worrying about where to store it physically or its safety.

 

HOW SGB OPERATES?

The SGB scheme is an initiative of the Indian government. Under the scheme, the Reserve bank of India is fully in charge of issuing the gold bonds on behalf of the Government. Members of the public that intends to buy these bonds can walk into any post office or commercial bank to buy these bonds whose denomination is in gram. However, it is required that investors will pay for the gold in cash. In a single fiscal year, a single individual will have the opportunity to buy a minimum gold of 2 gram and a maximum gold of 500 gram. Investors will earn a bond interest of 2.75%, however, the interest shall be paid semi-annually depending on the value of the investment.

 

FEATURES AND BENEFIT OF THE SOVEREIGN GOLD BOND SCHEME

 

The following table shows the features and benefits of the SGB scheme;

ITEMS FEATURES AND BENEFITS
Gold denomination These bonds will be issued in multiple weight denominations, starting from 1 gram onwards, providing flexibility in terms of purchasing gold which suits the needs of an individual.
Format One has an option to hold these bonds either in paper or Demat form, whichever is convenient to an individual.
Flexibility Investments in this scheme are flexible, with one having an option to choose the amount he/she wishes to invest.
Interest Investments in this scheme are eligible to earn interest every year.
Safety There is no need for storage or safety of gold under this scheme, as the gold isn’t physically given to an investor immediately
Purity Since it is backed by the government, one is assured of purity of gold when they invest in the scheme.
Maturity This scheme has a maturity period of 8 years.
Gift/transfer Investors can choose to gift or transfer these bonds to others, provided they meet the necessary eligibility criteria.
Premature withdrawal Premature encashment of these bonds is allowed after 5 years of issue.
Loan collateral Investors can use these bonds as collateral against loans.
Application The application process is simple and fast, with banks and post offices permitted to provide this service
Payment modes One can opt to purchase these bonds through multiple payment modes, with cheques, cash, DDs or electronic transfer accepted.
Nomination This scheme has a provision for nomination, adhering to the rules of the land.
Tradable Investors can trade these bonds on stock exchanges, subject to notifications of the Reserve Bank of India.

 

ELIGIBILITY FOR THE SOVEREIGN GOLD BOND SCHEME

The following table shows the eligibility criteria that you must fulfill in order to qualify for the SGB scheme;

  • Indian Resident: The Sovereign gold bond scheme is only open to Indian. The 1999 Foreign Exchange Management Act provides a legal backing for this criterion.
  • Individuals/groups: Groups, individuals, HUFS, and trusts are qualified to apply for this scheme provided they are all resident in India. Investors can also do joint investment.
  • Minor: The SGB scheme also accommodates minor. But the minors’ parent will purchase the bonds on his/her behalf

 

INTEREST RATE OF THE SGB SCHEME

The government through the Reserve Bank of Indian has made provision for all eligible investors to earn interest when they invest in the SGB scheme. Currently, the interest rate stands at 2.75% every year. This interest is usually paid to every participant every 6 months. The interest rate can be changed by RBI after consulting with stakeholders.

 

ASSOCIATED RISKS INVESTING IN THE SGB SCHEME

Traditionally, investment in gold is very safe; therefore, the chances of losing money are very low. However, since the price of gold depends largely on the performance of the market, a drop in the price of gold would invariably affect your capital. Therefore, we recommend that you track and monitor the trends in the gold market. This will enable you to make a good investment decision.

 

KYC DOCUMENTS REQUIRED

The following are the documents required to participate in the SGB scheme;

  • Proof of identity – TAN or PAN, Passport, Aadhaar Card, and Voter ID card
  • Bond issuing banks or post offices will carry out the KYC process on all prospective applicants

 

MAXIMUM & MINIMUM AMOUNT TO INVEST

In order to properly regulate and supervise the SGB scheme, the RBI has pegged the minimum amount to be 2gm and a maximum amount of 500gm in a single year.

 

HOW TO APPLY FOR THE SGB SCHEME?

  • Prospective investors seeking to apply for the SGB scheme can do so manually or online. The application form is available at every post offices or participating commercial banks.
  • You can visit the closest bank or post office to you to obtain the form. Alternatively, you can download the application form online via the RBI’s website or the bank’s website.
  • After downloading the form, you will fill the form with the required details and then attach all the required documents as mentioned above.
  • Once you are done, you will submit the completed form to any of the participating banks for onward processing.

 

CAN I TAKE LOAN AGAINST SOVEREIGN GOLD BOND?

If you have the intention to take a loan against the SGB bond, then the answer is yes! You can take a loan and then use your bond to stand as securities for you. The SGB bonds can equally be used as collaterals at both financial and non-financial institutions.

 

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