The Indian government announced its decision to issue sovereign gold bonds six years ago. They wanted to provide their citizens with a substitute for physical gold. The worries of the rising current account deficit due to the increase in the import of yellow metal made the government introduce the scheme. They wanted to provide an alternative for physical gold. They decide to issue sovereign gold bonds that are denominated in grams of gold. The bondholder pays the market price of the gold bond in cash. On maturity of the bonds, the bondholder receives redemption proceeds in cash into their account.
The Reserve Bank of India issues the sovereign gold bond to all citizens who are residents of India. When you buy a sovereign gold bond from the government, you are lending them money. It is effectively a loan, which the government can raise funds to spend on new projects, infrastructure, or any other expenditure. In return, the government also promises to pay you a rate of money at a specified period. That is called the interest, and you will receive it until the maturity of the bond.
Steps to invest in Sovereign gold bonds:
- The government will announce the start of a new subscription of sovereign gold bonds. This notice will mention that the bonds are open for subscription and the price per gram of gold.
- You can subscribe to the bonds during their primary issuance.
- You pay the issue price of gold for the bonds in cash.
- Once you are allotted the bonds, they are held securely in your demat account
- On maturity of the bonds, the bonds are redeemed to you in cash. Based on gold’s market price, you might receive the redemption proceeds.
- You also receive interest from the government on your investment value.
- The redemption proceeds and interest will be directly credited into your bank account.
How to subscribe to sovereign gold bonds:
If you want to buy a sovereign gold bond, you can do so through authorized brokers. You can also buy these bonds online:
You can now invest in a convenient and hassle-free manner in sovereign gold bonds. ICICI direct offers you gold-linked returns that the government guarantees.
- You need to open a demat account with ICICI direct. That can be done in a matter of a few minutes once you have linked your bank account and trading account to your demat account.
- Once you know that the sovereign gold bonds are open for subscription, you can invest in them. In the notice, you should also notice the period in which the issue is open and the price per gram of gold. The government usually provides a discount of ₹50 per gram of gold for investors who apply online for sovereign gold bonds. For instance, if the issue price per gram of gold mentioned in the government’s notice is ₹4732, and you invest in this bond online, you only have to pay an issue price of ₹4682.
- Open the ICICI website, select on FD & Bonds, and then select sovereign gold bonds
- Click on invest now
- You can then log in with your login ID, password, pan card number, or date of birth.
- Select the amount that you want to invest. Sovereign gold bonds are issued in denominations of 1 gram of gold. You can buy a minimum of 1 kg and a maximum of 4 kgs per financial year.
- Once you buy the bonds and are allotted to you, the interest, which is generally 2.50% per annum, will be credited to your account every six months.
- The bonds are stores directly in your demat account; you also have the option of receiving the holding certificates directly to your e-mail id.
- On maturity, the redemption proceeds will be directly credited to your bank account based on simple averages of closing price of gold of 999 purity of previous 3 working days published by the India Bullion and Jewellers Association limited (IBJA).
As an investor, sovereign gold bonds can offer you the benefits of assured returns and liquidity. It can also be used as collateral for loans and you are exempted from paying capital gain tax on gains made on redemption. Sovereign gold bonds also take away the hassle of storage and safety that you will face when you buy physical gold.
Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.