Gold Bond Scheme – Risks | Advantages and Other Details!

Gold is one of the oldest kinds of investing. However, physically keeping gold has always been a problem due to space and safety concerns. With this, the Indian government introduced the sovereign gold bond program, a type of gold investment that provides various additional benefits to both traditional and new investors.

So, with the introduction of this new sovereign gold bond system, investing in and holding gold has become considerably easier, as has storing and preserving gold. So, how about we learn more about this?

Important Points Regarding the Gold Bond Scheme

  • Bonds with gold as the underlying asset are issued by a sovereign gold bond program. The Reserve Bank of India issued the bonds on behalf of the government for the first time in November 2015. Because gold is rarely influenced by market swings, these bonds are a safe investment option. As a result, these gold bonds will be a great substitute for genuine gold. Both the purchase and redemption are made in cash rather than gold upon maturity.
  • The RBI issues sovereign gold bonds (SGBs) for a specific period of time. Typically, the RBI publishes a press statement announcing the issuing of the most recent sovereign gold bonds as well as a one-week opportunity for interested parties to invest. After acquiring the bond, investors are issued a holding certificate.
  • Their value is stated in multiple grams of gold, as the name implies. The gold is sold on an individual basis. SGBs are available in 1-gram increments. As a result, the smallest ownership is one gram, while the maximum is four kilograms per investor every fiscal year.

Individuals and Hindu Undivided Family HUFs can invest in the sovereign gold bond for as little as one gram and as much as four kilograms. The maximum investment for trusts and similar enterprises, however, is 20kgs.

The Operation of Sovereign Gold Bonds

The Reserve Bank of India issues SGBs on behalf of the Government of India. The bonds are available for subscription throughout the year in tranches. The bond issue price is set at a modest discount to the current market price of gold. Typically, the discount is approximately 2.5%.

SGBs can be purchased in multiples of 1 gram of gold. The minimum investment is one gram, and the utmost investment per fiscal year for individuals is four kilograms. The agreements can be held in tangible or demat form.

Interest is paid semi-annually on SGBs at a fixed rate of 2.50% per year. Annually, the interest is compounded.

SGBs have an eight-year maturity period. At maturity, the investor receives both the principal and accrued interest. The bonds may also be redeemed prior to maturity, with the redemption price tied to the market price of gold on the date of redemption.

What Are the Dangers Involved?

These bonds are a reasonably risk-free investing strategy. They do, however, have certain downsides.

  • As previously said, gold prices rise during a market slump. The opposite is also true. So, if you have solely invested in SGBs, this may not be beneficial to you because gold demand will plummet.
  • Currency changes affect the price of gold as well. Any increase in the value of the US dollar causes the price of gold to fall owing to rising inflation rates. This raises the cost of imports, reducing investment capabilities and, as a result, hurting gold demand.

Who Should Buy a Sovereign Gold Bond?

These bonds are low-risk investment solutions that are appropriate for people with low risk tolerance. SGBs also provide stable income by paying interest twice a year. The cost of acquiring and selling bonds is less than that of actual gold. Investing in sovereign gold bonds also alleviates the worry of safely storing actual gold. People who do not wish to deal with such a hassle may invest in them. Because the bonds are stored in a Demat account and on paper, there is no chance of theft. Individuals looking for a long-term investment with high returns might consider purchasing a gold bond.

As a newbie, here is a complete tutorial on how to invest in sovereign gold bonds. Take a look! If you want to diversify your portfolio, try investing in sovereign gold bonds. This compensates for your stock market exposure because gold tends to gain in value during a stock market slump.

Investment Advantages of Sovereign Gold Bonds

This strategy offers numerous benefits. Listed below are several of the most important advantages of investing in Sovereign Gold Bonds:

  • These bonds can also serve as collateral for loans. These bonds can be traded if you desire to abandon the market early.
  • The duration of the bond is eight years. However, there is a departure opportunity after five years.
  • The greatest advantage is that they are supported by a sovereign guarantee, not only on the interest earned but also on the principal invested.


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