Three Things To Keep In Mind Before Investing In RBI’s Sovereign Gold Bonds

The Sovereign Gold Bond (SGB) Scheme 2021-22-Series opened for subscription today, February 28. It will remain open till March 4. For this scheme, the Reserve Bank of India (RBI) has set the price at Rs 5,109 per gram of gold.  

In the SGB schemes, the RBI issues bonds on behalf of the Government of India. The bonds are sold through banks, Stock Holding Corporation of India, designated post offices, and recognised stock exchanges (National Stock Exchange and the BSE). 

How is digital gold better than physical gold? Find out here. 

Investing in SGBs is often considered a safe mode of investing in gold. Here are a few things investors need to keep in mind before investing in the SGB scheme.   

It Is Not Meant For Aggressive Returns

SGBs offer capital appreciation as well as government-guaranteed interest payment. However, do note that the interest on the bonds is 2.5 per cent, so one should not expect aggressive or high returns.  

Invest In A Limited Quantity

SGBs are a way to invest in gold without having to face the difficulties that come with investing in physical gold. “In your investment portfolio, SGBs should not be more than 5-8 per cent of the total investments. Looking at the current political and economic scenario, including the Russian and Ukrainian War, since the equity-driven market is choppy, it is advisable to invest some part of your wealth in SGBs for assured returns along with capital appreciation,” says Deepak Jain, CEO, TaxManager.in, a tax e-filing and compliance management portal.   

Consider The Tax Involved

Unlike various other investments that come with tax benefits, interest earned on SGBs are taxable. “The interest earned from SGBs is treated as ‘income from other sources’ and taxed at the applicable income tax rates as per the tax slab the investor falls in. But no TDS (tax deducted at source) is deducted on the interest earned on SGB,” adds Jain. Long-term capital gains tax of 20 per cent with indexation applies if you hold the SGB for more than three years. (The bond’s maturity is eight years.) If you redeem only after the bonds mature, “no capital gains tax is applicable,” adds Jain.