Gold Bonds: Capital Appreciation + Regular Income

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  • Mr Market
  • 20-Jul-2016

What are Gold Bonds?

Gold Bonds are government securities provided to investors who want to invest in gold without physically buying it. The returns of gold bonds are linked to the price of gold at the time of redemption. These gold bonds are issued by Reserve Bank of India (RBI) on behalf of Government of India (GOI) and offers many additional benefits to an investor. Gold bonds are also beneficial to the Indian economy as the success of same would reduce the import bill of gold and thereby improve the current account deficit of India.

Benefits of Gold Bonds provided to Investors:

1. Interest Income: Physical gold does not yield any income. However, GOI has decided to pay 2.75% interest annually to all gold bond investor.

2. Exemption on Capital Gains Tax: Physical gold when sold attracts a capital gains tax after indexation. However, capital gains tax is exempted completely on the sale of Gold Bonds after 8 years.

3. Ease of Storage: Investors have to always worry about storing physical gold. However, gold bonds can be held as a certificate or in a demat form instead of physical form. Further there is no risk of theft/loss or impurities associated with physical gold.

4. Ease of Purchase / Sale: Among other ways to purchase the gold bonds, the same can be purchased from Indian stock exchange -NSE and BSE

5. Various Denomination available: The bonds can be purchased in the denomination of 1, 2, 5, 10, 50, 100 grams of gold.

6. Transferable: The gold bonds will be traded on NSE and BSE and thereby the investor can exit the same if there is any such need.

7. Can act as Collateral: Gold Bonds can also act as collateral for getting loans from banks in time of need.

Subscription Information on the 4th Tranche of Gold Bond Scheme:

  • Subscription Period: 18Jul16 to 22Jul16
  •  Issuance Price: Rs.3119/- per gram
  • Redemption Period: 8 years
  • Minimum Investment: 1 Gram
  • Maximum Investment: 500 Grams per person
    Listing: BSE / NSE

Who should Buy Gold Bonds?

Investors looking to invest in Gold for its use in future: We as Indians have a deep rooted culture of buying gold due to various reasons like use of gold at the time of marriage in family. However, it does not yield any income and storing it safely is a challenging task. Gold Bonds offers both of these.

Hedge against uncertainty: The geo-political risk and the currency devaluation seen across the world due to mass scale printing of money makes the world we are in highly volatile and uncertain. Investors thinking to hedge against these uncertainty can take exposure to gold prices with the help of Gold Bonds.

Risk in Gold Bonds:

Gold bond price is linked to price of gold and there can be losses if the gold price on redemption is lower than the current price. However, the units of gold (in grams) would remain the same.

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