Overview
In India, gold is perhaps the most identifiable asset, investment in which is valued by all kinds of demographics. Men, women, elderly, young, rich or poor – everyone understands the value of gold and can easily buy or sell it. You may have noticed the meticulous safekeeping of ornaments in your home, with efforts being made to contribute to the gold pot frequently.
The more financially forward individual, however, understands that this asset makes for a better investment as a sovereign gold bond rather than as jewellery. Sovereign gold bonds are securities offered by the government through the Reserve Bank of India (RBI)as substitutes for physical gold. They are denominated in grams of gold and investors pay an issue price to acquire them. They can be redeemed in cash once they mature – usually after eight years. You may, however, prematurely encash them after five years.
Sovereign gold bonds give investors the opportunity to invest in the yellow metal without having to worry about the risks of physically storing it. They receive not only the market value of gold once the bonds mature, but also a periodical interest. A fixed interest rate of 2.50 percent is paid on the initial investment every year. This is credited twice a year to the investor’s bank account. The last of the interest is paid with the principal amount when the bonds mature.
How are gold bondsstored?
On the day the bonds are issued, the investor is given a Certificate of Holding by the bank issuing the bonds, the Stock Holding Corporation of India Limited (SHCIL), stock exchanges, agents, designated post offices, or directly from the RBI via e-mail. These certificates can be held physically, or investors can choose to store them in their Demat accountsif they wish to trade.
If investors intend to trade using the gold bonds,they should make a request for the same in the application form itself. Then, until the dematerialisation process for the bonds is complete, the assets are held in the RBI’s books. Apart from trading on stock exchanges, the Government Securities Act, 2006 facilitates the transfer – both full and partial – of sovereign gold bonds.
Checking the value of sovereign gold bonds
If, at any given time, you wish to calculate the value of your SGB gold bonds,you need to simply follow the method the RBI uses to determine the issue price. It can be calculated as the simple average of the closing price of 999 purity gold for the last three business days of the week. These closing prices are published by the India Bullion and Jewellers Association Limited (IBJA) every day.
Trading sovereign gold bonds
The long lock-in period forgold bondsis a big deterrent for many investors. However, the silver lining is that should you wish to make an exit, you can sell your sovereign gold bonds on the stock exchange before the assets mature. You can determine the value of the bonds based on the India Bullion and Jewellers Association’s closing figures, and sell your holding on the exchange accordingly. The price of the gold bondswill be informed by the price of goldas well as the demand and supply for the asset in question.
If an investor wishes to redeem the bonds prematurely after the imperative five-year lock-in period, they can do so on the coupon-paying dates. However, remember that in order to encash your bonds prematurely, you must notify your issuing authority 30 days in advance of the coupon date.
These bonds can be transferred or gifted to others before maturity as well. Investors must obtain a transfer form from the issuing entity – be it post offices, banks or other agents. This form is necessary for the transfer of ownership and fresh registration of the gold bonds.
Conclusion
Keeping tabs on the value of your assets is a healthy habit. The need for additional funds can arise at any time, or you may simply wish to reallocate your capital to other securities, or even diversify your investment portfolio. In such situations, a ready figure that reflects the worth of your sovereign gold bonds comes handy.
Determining the value of your sovereign gold bondsdiffers from finding out the price of other securities. You need to carry out a simple calculation based on the figures released by the IBJA. These figures are always changing, so holders of these assets should regularly follow fluctuations in the price of gold.
As an enthusiast with a deep understanding of the topics discussed in the article, I can confidently provide insights into each concept covered:
Sovereign Gold Bonds Overview:
1. Investment in Gold:
- Gold is a widely recognized and valued asset in India, appealing to various demographics.
- It serves not only as jewelry but also as an investment option.
2. Sovereign Gold Bonds (SGBs):
- Securities offered by the government through the Reserve Bank of India (RBI).
- Serve as substitutes for physical gold.
- Denominated in grams of gold; investors pay an issue price to acquire them.
- Maturation period is typically eight years, with an option for premature encashment after five years.
3. Benefits of SGBs:
- Eliminate the risks associated with physically storing gold.
- Investors receive the market value of gold at maturity and periodic interest (fixed rate of 2.50 percent annually).
How are Gold Bonds Stored?
4. Certificate of Holding:
- Investors receive a Certificate of Holding on the day the bonds are issued.
- Issued by the bank, Stock Holding Corporation of India Limited (SHCIL), stock exchanges, agents, designated post offices, or directly from the RBI via e-mail.
5. Storage Options:
- Certificates can be held physically or stored in Demat accounts if investors intend to trade.
6. Trading Process:
- Investors can trade the bonds by making a request in the application form.
- Until dematerialization is complete, the assets are held in the RBI's books.
- Trading can occur on stock exchanges, facilitated by the Government Securities Act, 2006.
Checking the Value of Sovereign Gold Bonds:
7. Calculation Method:
- The value of SGBs can be calculated using the simple average of the closing price of 999 purity gold for the last three business days of the week.
- Closing prices published by the India Bullion and Jewellers Association Limited (IBJA).
Trading Sovereign Gold Bonds:
8. Exit Options:
- Despite a long lock-in period, investors can sell SGBs on the stock exchange before maturity.
- Bond value is determined by the price of gold, demand, and supply.
9. Premature Redemption:
- Investors can redeem bonds prematurely on coupon-paying dates.
- Notification to the issuing authority is necessary 30 days in advance of the coupon date.
10. Transferability:
- Bonds can be transferred or gifted before maturity using a transfer form obtained from the issuing entity (post offices, banks, or other agents).
Conclusion:
11. Importance of Regular Valuation:
- Regularly checking the value of SGBs is essential for financial planning and decision-making.
- The valuation method involves a simple calculation based on figures released by the IBJA.
In summary, investing in sovereign gold bonds offers a secure alternative to physical gold, providing both financial returns and ease of trade. Understanding storage, valuation, and trading processes is crucial for maximizing the benefits of this investment option.
