The Indian government is set to empower investors with the launch of the next series of Sovereign Gold Bonds (SGBs) for the current financial year. This highly anticipated issuance will occur in two tranches, providing individuals and entities with a golden opportunity to diversify their investment portfolios. The first tranche, referred to as the 2023-24 Series I, will open for subscription from June 19 to June 23, 2023, and the bonds will be issued on June 27. The second tranche, the 2023-24 Series II, will become available for subscription from September 11 to September 15, 2023, with the issuance date set for September 20.
SGBs were introduced as an innovative alternative to physical gold, allowing investors to participate in the gold market while enjoying the convenience and security of a financial instrument. To facilitate accessibility, these bonds can be purchased through a range of channels, including scheduled commercial banks, designated post offices, and esteemed stock exchanges such as the National Stock Exchange of India Limited and Bombay Stock Exchange Limited. Notably, entities such as the Stock Holding Corporation of India Limited (SHCIL) and Clearing Corporation of India Limited (CCIL) are also authorized outlets for SGB acquisition. It is important to note that Small Finance Banks, Payment Banks, and Regional Rural Banks are not designated platforms for SGB sales.
With regards to the denomination, SGBs are available in multiples of grams, with a minimum investment requirement of one gram. To accommodate various investment capacities, there are specific maximum limits for subscriptions. Individual investors and Hindu Undivided Families (HUFs) can subscribe for up to 4 kg of SGBs per fiscal year, while trusts and similar entities have a maximum limit of 20 kg.
The issue price of SGBs is determined based on the simple average of the closing price of gold with a purity of 999, as published by the India Bullion and Jewellers Association Limited (IBJA) during the three working days preceding the subscription period. A noteworthy benefit for investors is the discounted price offered to those who subscribe online and opt for digital payment, enjoying a reduction of Rs 50 per gram on the issue price.
Investors will be rewarded with a fixed interest rate of 2.50% per annum on the nominal value of the SGBs, payable semi-annually. These bonds have a maturity period of 8 years, with the option for premature redemption after the 5th year, coinciding with the interest payment date. This flexibility allows investors to align their financial goals with their investment strategies.
SGBs possess the unique advantage of being eligible as collateral for loans. Similar to ordinary gold loans, the loan-to-value (LTV) ratio will be determined in accordance with the guidelines set by the Reserve Bank of India (RBI).
To ensure transparency and security, SGBs are issued as Government of India Stock under the Government Securities Act, 2006. Investors will be provided with a Certificate of Holding, verifying their ownership of the gold bonds. Additionally, the bonds are eligible for conversion into dematerialized (demat) form, offering further convenience and ease of trading.
While the interest earned on SGBs is taxable under the provisions of the Income Tax Act, 1961, individuals are granted exemption from capital gains tax upon redemption. Moreover, long-term capital gains arising from the transfer of SGBs are eligible for indexation benefits, enhancing the overall tax efficiency of these investments.
In summary, the launch of the latest series of Sovereign Gold Bonds in India presents a significant opportunity for investors to diversify their portfolios