Investors in Sovereign Gold Bonds have seen their money double. The first series of Sovereign Gold Bonds is maturing on November 30.
Issued by the government on November 26, 2015, under a government scheme, these bonds have doubled investors’ money in just 8 years. The next series is expected soon.
Let’s understand what Sovereign Gold Bonds are and how they can be beneficial for you.
Sovereign Gold Bonds: Government-guaranteed for better returns
Issued by the Indian government as bonds linked to the price of gold, Sovereign Gold Bonds are a form of paper gold. Issued by the RBI on behalf of the government, these bonds come with a government guarantee. Investors in Sovereign Gold Bonds receive an annual interest of 2.5% on their investment.
This interest is transferred to investors’ bank accounts every six months. Online investors also receive a discount of ₹50 per gram on their investment.
Some investors have already redeemed before maturity
According to RBI data, by November 20, 2023, a total of 1,552,953 units, equivalent to 1.55 tons of gold, were redeemed before maturity. Investors have already sold 6% of the units before maturity, out of the total 913,571 units purchased earlier.
Secure investment option
Even after the maturity of this series, investors will have the opportunity to invest in this scheme. This scheme has proven to be lucrative for those who prefer investments.
Outperforming FDs
Sovereign Gold Bonds offer higher returns compared to Fixed Deposits (FDs). While your money in an FD will double in about 10 years at a 7% interest rate, this scheme provides better returns.
Lock-in period of 8 years, but can withdraw after 5 years
Sovereign Gold Bonds have an 8-year maturity period. However, investors can withdraw their money before maturity, but only after the completion of a 5-year lock-in period. Investors must keep their money invested in Sovereign Gold Bonds for at least 5 years.
New series issued by RBI from September 11 to September 15
The new tranche of Sovereign Gold Bonds was issued by the Reserve Bank of India from September 11 to September 15 this year.
Equivalent to 24-carat gold
Financial expert Jitendra Solanki explains that the price of Sovereign Gold Bonds is equivalent to 24-carat physical gold. Launched in 2015 by the government to reduce gold demand in the market, it allows investors to buy gold at a lower price, with a guaranteed 2.5% interest until maturity.
No risk of depreciation
Sovereign Gold Bonds are entirely linked to the price of 24-carat gold. Due to being issued by the RBI, there is a government guarantee, and there is no risk of depreciation. It also provides an annual interest of 2.5%, which, along with the gold price, adds to the overall returns over time.
Investors receive a notice before maturity
All investors receive a notice before the maturity of Sovereign Gold Bonds. After maturity, the principal amount along with interest is credited to the investor’s account. There is no deduction when selling the bond; investors receive money based on market rates.
Extra benefit from interest on gold bonds
Investors receive an additional benefit of 2.5% annual interest on purchasing Sovereign Gold Bonds. This interest is credited to the investor’s bank account every six months. During maturity, the interest amount is added to the principal for a compounded return.
No tax on post-maturity gains
Investors do not have to pay any tax on the gains from Sovereign Gold Bonds received after maturity.
Negative impact if gold prices fall
If there is a decline in gold prices due to international or domestic reasons, investors bear the loss, impacting the returns on Sovereign Gold Bonds.
Interest susceptible to inflation
The interest earned on Sovereign Gold Bonds may lose its value due to inflation rates being higher than the 2.5% interest rate.
Investment locked within a timeframe
Sovereign Gold Bonds are essentially a closed-ended scheme, where applications are invited for a specific period and duration. Investors cannot withdraw their money before maturity, making it less liquid.
Challenges in withdrawing money during emergencies
If investors need funds before five years, Sovereign Gold Bonds cannot be redeemed. It is not a liquid investment and is not designed to fulfill immediate financial needs or uncertain expenses.
In conclusion, Sovereign Gold Bonds offer a secure and government-guaranteed investment option with the potential for significant returns over time. However, investors should carefully consider factors like the lock-in period and potential risks associated with fluctuations in gold prices before making investment decisions.
