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New SGB tranche
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What is Sovereign Gold Bond?
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Assured returns
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Hassle free
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Tax treatment
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Tradability
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Transferability
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Collateral as loans
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GST NIL
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No capital gains tax
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Greetings, I'm an expert in financial instruments and investment strategies, and my depth of knowledge extends to various government-backed securities. I have closely followed the developments in the financial markets and have a comprehensive understanding of investment vehicles. Allow me to delve into the concepts mentioned in the article by Sneha Kulkarni on ET Online dated December 20, 2022.
Sovereign Gold Bonds 2022-23 (Series III)
The Sovereign Gold Bonds (SGB) 2022-23 (Series III) are a notable financial instrument available for subscription from December 19 to 23, 2022, with a settlement date of December 27, 2022. The issue price during the subscription period is fixed at Rs 5,409 per gram.
What is Sovereign Gold Bond (SGB)?
Sovereign Gold Bonds are government securities valued in kilograms of gold. They offer an alternative to physical gold, allowing investors to purchase bonds at the outset and redeem them at maturity. The Reserve Bank of India manages the Sovereign Gold Bond program on behalf of the Indian government.
Assured Returns
Investors in SGBs benefit from an annual interest rate of 2.50%, which goes beyond the potential rise in the price of gold. Interest is paid every six months or every two years on the nominal value of the bond.
Hassle-Free Ownership
One of the advantages of SGBs is that individuals can own gold without the need for physical possession. This eliminates the risks and costs associated with storing physical gold.
Tax Treatment
SGBs come with favorable tax treatment. The capital gains tax upon redemption is exempted for individuals. Long-term capital gains on the transfer of bonds also receive indexation benefits.
Tradability
Sovereign Gold Bonds become tradable on stock exchanges within a fortnight of issuance, as notified by the RBI. Notably, trades in SGBs are not subject to the Security Transaction Tax.
Transferability
Bonds can be transferred by executing a transfer instrument in accordance with the provisions of the Government Securities Act.
Collateral for Loans
SGB holders have the option to avail loans against their Sovereign Gold Bonds. The maximum amount that can be availed is Rs 20.00 lakhs per individual.
GST Nil
SGBs enjoy tax-free status, distinguishing them from the purchase of physical gold, where GST is applicable.
No Capital Gains Tax
With an 8-year maturity duration, SGBs are exempt from capital gains tax. However, if an investor exits after 5 years, capital gains tax becomes applicable.
In conclusion, Sovereign Gold Bonds provide a unique avenue for investors to participate in the gold market with added advantages such as assured returns, tax benefits, and the flexibility to trade and use them as collateral for loans. This comprehensive overview should provide a clear understanding of the key concepts outlined in the article.