If you invest in gold coins and bars, you’re squandering a fantastic opportunity to make a lot of money. There are gold bonds on the market that allow you to profit from price fluctuations while still paying a set interest rate, similar to bank fixed deposits. A sovereign gold bond is a low-cost, high-quality alternative to purchasing actual gold; hence, the benefits of sovereign gold bond are countless. Let us explain why gold bonds are a good investment.
What are gold bonds, exactly?
The value of a sovereign gold bond is measured in kilos of gold. You may buy in 1 gram increments (gm). As a result, a 1 gram investment is required. The maximum amount of gold that may be purchased through gold bonds is 4 kg per investor every fiscal year. It is possible to nominate someone. Remember to amend the nominee information throughout the investing process, or you may do it afterward.
What is the interest rate?
You might be shocked to learn that a set interest rate is one of the key advantages of the sovereign gold bond plan. Every year, the interest rate on gold bonds is 2.50 percent. Remember, this is in addition to the gold price increase. On the nominal value, interest is paid every six months or semi-annually.
The duration of the investment
Gold bonds have an average term of 8 years. After 5 years, the option to exit is available. If you wish to get out before the end of the term, you’ll have to complete an early redemption. The bank must be notified. IDFC FIRST Bank, for example, has a 30-day notification requirement.
Additionally, gold bond holders can sell their bonds on stock markets at any moment. Please keep in mind that if the bonds are sold via the exchange platform, the appropriate capital gains tax will be paid at the same rate as if the bonds were sold in person.
Certificates of investment
When you apply for a sovereign gold bond, you will be given an application number right away. In addition, all gold bond investors get certificates from the RBI. The bank is responsible for delivering the certificate. Keep in mind that certifications typically take 15 to 30 days to be issued once an application is submitted.
Advantages of gold bonds versus actual gold
For a variety of reasons, a sovereign gold bond is a superior investment to real gold.
- The First and one of the biggest benefits of sovereign gold bond is that, for starters, when you apply for gold bonds online, you might obtain a lesser price than if you bought actual gold.
- Second, these gold bonds have a set interest rate.
- Thirdly, because the gold bonds have no other holding cost or storage cost.
- Fourth, because these bonds are issued by the government, they are backed by the government.
- Fifth, private investors profit from the sovereign gold bond scheme since there is no capital gains tax at maturity or redemption. For non-individual investors, there is also an indexation advantage if the money is transferred before maturity. Keep in mind that the interest you earn is taxed. There is no TDS during redemption or interest distribution, which is a welcome relief.
Last but not least, a sovereign gold bond is extremely liquid. This is due to the fact that the investment may be used as a kind of collateral for loans.