The Sovereign Gold Bonds scheme that opens on 24 April is a golden opportunity for those wanting to invest in the precious metal. Resident Indians, HUFs, Trusts, Universities and Charitable Institutions can apply. Here are five reasons why you should go for these bonds.
Just like gold but no making charges: The bonds are linked to the price of gold so investing in these bonds is equivalent investing in gold. But like in case of gold biscuits, coins and jewellery, you don’t have to pay any making charges to the seller. You get the full value of what you pay.
Discount offer from govt: To attract investors, the government is offering a discount of Rs 50 per gram of gold. So while the market price of gold is Rs 2,951 per gm, you can buy one gold bond (equivalent to 1 gm gold) for Rs 2,901. This works out to a 1.7% discount on the current price of gold.
Assured interest income: To further sweeten the deal, the government offers 2.5% interest on the gold value every year. This is paid out to the investor every year. So, investors will get an interest payment of Rs 72.50 a year for every gold bond they hold.
Flexible investment: The entry threshold for gold bonds is lower than even mutual funds. The minimum application should be for one bond of 1 gram gold, so once can invest even Rs 2,901. However, there is a cap on the maximum investment. An individual cannot apply for more than 500 bonds.
Tax benefits: The gold bonds are tax free if held for the full tenure of eight years. If held till maturity, the capital gains made by the investor are exempt from tax. If they are sold off before maturity, the investor will be eligible for indexation benefit while calculating the long-term capital gains.
Liquidity: The sovereign gold bonds will get listed within 1-2 weeks of issuance so if an investor wants to exit, he can sell his bonds on the exchange. Short-term capital gains will be taxed at the marginal rate applicable to the investor, but long term capital gains are eligible for indexation.
Collateral: The gold bonds have been issued by the RBI and carry sovereign guarantee. They can be used as collateral to raise funds.
Ease of investment: The gold bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post office branches and stock exchanges. You can pay by cash (up to a maximum of Rs 20,000) or through a demand draft, cheque or via electronic banking.
(Author: CA Sudhir Kaushik, Co-Founder and CFO, TaxSpanner.com)