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What is the Gold bond scheme and should you invest?

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If you buy gold coins and gold bars as an investment, you are wasting a golden opportunity to earn some great returns. There are gold bonds floated in the market, which allow you to capture the price movement and also pay you a fixed interest just like bank fixed deposits give. A sovereign gold bond is a simple but a superior alternative to buying physical gold. Let us explain why you should buy gold bonds.

What are gold bonds?

sovereign gold bond is denominated in grams of gold. You can get in multiples of 1 gram (gm). So, the minimum investment is 1 gm. The maximum gold you can buy through gold bonds is 4 kgs per investor per financial year. Nomination facility is available. Do remember to get the nominee details updated during investment or you can do it later as well.

How much interest rate

You will be surprised to know that a major benefit of the sovereign gold bond scheme is a fixed interest rate. The gold bond interest rate is 2.50% every year. Remember, this is over and above the gold price return. The interest is paid every six months or semi-annually on the nominal value.

Tenure of investment

Generally, the tenure of gold bonds is 8 years. One can use the exit option after 5 years. If you want to exit before maturity, you will have to do early redemption. You have to intimate the bank. For instance, there is a 30-day prior notice norm for IDFC FIRST Bank.

Additionally, gold bond investors have the option of selling the bonds anytime on stock exchanges. Kindly note that in case the bonds are sold on the exchange platform, the applicable capital gains tax will be payable at the same rate as for physical gold.

Investment certificates

Upon application for a sovereign gold bond, you will get an application number immediately. Additionally, the RBI issues certificates to all investors in gold bonds. The certificate is delivered by the bank. Remember, it usually takes 15-30 days post-application for the issue of certificates.

Gold bond advantages over physical gold

A sovereign gold bond is a better investment than physical gold because of many reasons.
1. These gold bonds allow you to get a lower price than physical gold when applied online.
2. You get a fixed interest rate on these gold bonds.
3. Gold bonds have no holding or storage cost.
4. These bonds carry a sovereign guarantee since they are issued by the government.
5. Another benefit of sovereign gold bond scheme is that there is no capital gains tax at maturity or redemption for individual investors. Also, there is indexation benefit if the same is transferred before maturity for non-individual investors. Do remember that the interest earned is taxable. Thankfully, there is no TDS either during redemption or interest payout.
6. A sovereign gold bond is highly liquid. This is because the investment can be used as collateral for loans.

Who can buy?

All resident individuals, HUFs, registered entities like a trust, universities, charitable institutions, societies and clubs, partnership firms and private or public limited companies can buy gold bonds.
However, Non-Resident Indians (NRIs) and Foreign Institutions/Entities will not be allowed to hold gold bonds.

Final Verdict

All investors looking to buy gold should buy gold bonds. This is a great credit-risk free form of investment. There are no making charges or annual fees involved. Plus, it is taxed as physical gold and there are indexation benefits offered.



The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.