Sovereign Gold Bonds:The next tranche of the Sovereign Gold Bond (SGB) scheme, initially launched on August 5, 2016, is scheduled for redemption on August 5, 2024, after an eight-year holding period. These bonds were purchased at Rs 3,119 per gram and have provided substantial returns to investors. Out of the 2.6 tons originally acquired, 225.322 kg were redeemed after five years, leaving 2.75 tons still pending redemption.
In September 2024, an additional 2.39 tons of SGBs will be up for redemption, amounting to nearly five tons of bonds set to mature within two months. The tranche purchased on September 30, 2016, was acquired at Rs 3,150 per gram.
Up to the present time, investors have enjoyed an annual interest rate of 2.5% over the past 8 years. Furthermore, the price of gold has appreciated by 115%, now standing at around Rs 6,800 per gram.
The specific tranche maturing on August 5, 2024, was initially issued at a price of Rs 3,119 per gram of gold. Due to the fluctuating nature of gold prices, the final redemption amount will be determined by the average closing price of gold with 999 purity for the three working days leading up to the redemption date. This information will be sourced from the data published by the India Bullion and Jewellers Association (IBJA).
Global market corrections and a 9% reduction in import duty have contributed to a notable decline in Indian gold prices. This decline has brought the prices down significantly from their previous peaks, with the rates dropping from an all-time high of Rs 7,500 per gram to a Budget Day high of Rs 7,250 per gram. Despite this downward trend, investors who have invested in the 2016 Sovereign Gold Bond (SGB) have still experienced impressive triple-digit gains.
Top government officials said: “For SGB issued in 2015, the returns to investors are approximately 12% per annum, net of income tax. Such returns are better than the returns from most other asset classes with similar risk profiles.”
Earlier this week, Revenue Secretary Sanjay Malhotra said the sovereign gold bonds will get at least 12 percent total return, including interest, for the investors despite the Union budget cutting customs duties on gold and silver to 6 percent from 15 percent.
“I want to assure that despite the rate reduction in gold import duty, the sovereign gold bonds nearing final redemption will still get at least 12 percent total return, if not 12.7-12.8 percent. Even 12 percent return is not low,” Malhotra said at the post-Budget session at the PHD Chamber of Commerce and Industry.
The Sovereign Gold Bond (SGB) scheme was introduced in November 2015 to offer a secure and convenient option for investing in gold. These bonds are available in various denominations of gold grams, enabling investors to access the gold market without having to worry about the challenges of storing and securing physical gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bonds are issued by Reserve Bank on behalf of Government of India.
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
Taxation aspect
SGBs will be classified as long-term capital assets if they are held for more than 12 months. Any SGBs transferred on or after July 23, 2024, will be subject to a tax rate of 12.5% under section 112, without the benefit of indexation.
If an SGB is held for 12 months or less, it will remain categorized as a short-term capital asset and will be taxed according to the applicable slab rates.
Sector experts recommend SGBs as a secure and tax-efficient investment option in comparison to physical gold, as they provide a 2.5% annual interest. On the other hand, physical gold offers greater liquidity and can be utilized for jewelry purposes. SGBs come with a lock-in period of five years, whereas physical gold can be sold at any time. The decision between the two depends on factors such as investment horizon, liquidity requirements, and tax implications.
