Every information you need before buying a gold bond

by Arjun Pal Student

An SGB is government security whose value is denominated in terms of the amount of gold that it holds. They are alternatives for holding physical gold. If you wish to invest in them you would have to pay the price, at which they are issued, in cash. You can also redeem the bonds in cash when they mature. It is the Reserve Bank of India that issues these gold bonds as a representative of the Indian government.

What are the advantages of investing in them rather than in physical gold?

For starters, your investment in this case is always protected because no matter whenever you redeem the same you would get the current market price of the gold. This is applicable even when you go for premature redemption of the gold bond. So, this is a major reason why sovereign gold bonds can be regarded as a much better alternative than holding physical gold. You do not have to pay any money for storing them and there are also no risks over here that you normally have when you hold physical gold. Apart from being paid in terms of market price at times of redemption, you can be sure that you would get periodic interest on the same as well.

When you invest in sovereign gold bonds you also do not have to worry about issues with the purity of the gold and costs like making charges that are applicable for golden ornaments.

What are the risks of investing in these?

When you invest in a sovereign gold bond you need to be prepared for a capital loss in case the market value of gold goes down at the time when you redeem the investment. However, as an investor, you never lose the units of gold that you had paid for when you bought the bond.

Who can invest in these?

Every resident in India can invest in these bonds. However, they must be qualified as such according to the rules and regulations that have been mentioned in the Foreign Exchange Management Act, 1999. Apart from individuals, HUFs (Hindu undivided families), universities, trusts, and charitable institutions can invest in these bonds as well. If an investor becomes a non-resident they can keep hold of the bonds till the time it matures or if they redeem them before that. If you wish to invest in these bonds it is always better to do so through the top service providers in the domain such as ICICI Direct.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.