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Sovereign Gold Bond Schemes are government securities denominated in grams of gold.

A minimum investment equivalent to the price of 1 gram of gold has to be made, while the maximum limit is equal to the value of 4kg of gold for individuals and (HUF).

A coupon rate of 2.5% per annum is associated with the sovereign gold bond scheme, which is disbursed half-yearly to investors.

Gold bonds are issued for a period of 8 years, with premature withdrawal permissible from the 5th year. Also, individuals can sell their respective securities in the secondary market at the market rate of gold.

Prices of a sovereign gold bond 2020 is calculated through a simple average of the closing prices of 999 purity gold for the last 3 days set by the Indian Bullion and Jewellers Association Limited (IBJA).

Advantages of Investing in Sovereign Gold Bonds

Since it’s government backed sovereign gold bonds are one of the safest forms of investments available in India.

It reduces the hassles involved with physical gold investments.

Gold prices demonstrate extensive capital appreciation.

Taxes

Investors holding a bond for the entirety of the term are not required to pay long-term capital gains tax. However, periodical interest income is taxed under ‘Income from other sources,’ and attracts tax rates as per the respective income tax slab.

Individuals opting for resale of a bond in the secondary market have to pay tax on any capital gains realised. Resale before completion of 3 years attracts short term capital gains on total profits, at rates as per the annual income of investors. Long term capital gains, on the other hand, attract tax at 20% of the total earnings, after adjusting the same for indexation.