Comprehensive Guide to Sovereign Gold Bonds (SGBs)

Understanding Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These bonds are denominated in grams of gold and are designed to provide a secure investment avenue for gold enthusiasts while reducing the demand for physical gold.

Why Are SGBs Issued?

The primary purpose of issuing SGBs is to promote fiscal stability. By encouraging individuals to invest in SGBs instead of physical gold, the government aims to minimize the import of gold and its associated costs. This initiative also provides investors with a more secure and manageable investment option.

Key Features of Sovereign Gold Bonds

• Price: The current price is ₹5,923 per gram for regular purchases, while it is ₹5,873 for transactions made through digital payments.
• Interest Rate: SGBs offer a fixed interest rate of 2.5% per annum, which is paid semi-annually.
• Maturity Period: The bonds have a maturity period of 8 years, with the option for premature redemption available after the fifth year.
• Tax Benefits: Capital gains realized at maturity are tax-exempt, although the interest earned is taxable.

Benefits of Investing in SGBs

Investing in Sovereign Gold Bonds comes with several advantages:

• Earnings: Investors can earn a fixed annual interest of 2.5%, which provides a steady income stream.
• Tax Efficiency: If held until maturity, there is no capital gains tax on the bonds, making them a tax-efficient investment.
• Liquidity: SGBs can be traded on stock exchanges, providing liquidity to investors.
• Convenience: These bonds can be held in a demat account, simplifying the management of gold investments.

Frequently Asked Questions (FAQs)

Q1. What are Sovereign Gold Bonds?
Answer: Sovereign Gold Bonds (SGBs) are government securities issued by the RBI that are denominated in grams of gold, offering investors a secure alternative to physical gold.

Q2. What is the interest rate for SGBs?
Answer: SGBs offer a fixed interest rate of 2.5% per annum, which is paid to investors semi-annually.

Q3. How long is the maturity period for SGBs?
Answer: The maturity period for Sovereign Gold Bonds is 8 years, with an option for premature redemption after the fifth year.

Q4. Are there any tax benefits associated with SGBs?
Answer: Yes, capital gains at maturity are tax-exempt, although the interest earned is subject to taxation.

Q5. Can SGBs be traded?
Answer: Yes, Sovereign Gold Bonds are tradable on stock exchanges, providing liquidity to investors.

UPSC Practice MCQs

Question 1: What is the main purpose of issuing Sovereign Gold Bonds?
A) To promote physical gold investment
B) To reduce demand for physical gold
C) To increase gold imports
D) To provide unsecured loans
Correct Answer: B

Question 2: What is the interest rate offered on SGBs?
A) 1.5% per annum
B) 2.0% per annum
C) 2.5% per annum
D) 3.0% per annum
Correct Answer: C

Question 3: After how many years can SGBs be prematurely redeemed?
A) 3 years
B) 5 years
C) 6 years
D) 8 years
Correct Answer: B

Question 4: What is the tax exemption associated with SGBs?
A) Interest earned
B) Capital gains at maturity
C) Both A and B
D) None of the above
Correct Answer: B

Question 5: How can SGBs be held by investors?
A) Only in physical form
B) In a bank account
C) In a demat account
D) Only through brokers
Correct Answer: C