RBI-issued gold-backed bonds. 8-yr tenure, 5-yr early redemption window. 2.5% annual interest + gold price appreciation. MATURITY tax-free for individuals. Better than physical gold.
SGB = Sovereign Gold Bond. RBI-issued bonds backed by gold + government. KEY: (1) Issued in tranches (3-6 per year). (2) 8-yr maturity. (3) 5-yr early redemption window. (4) 2.5% annual interest paid semi-annually (taxable at slab). (5) On maturity: GOLD PRICE × units = repayment (TAX-FREE for individuals at maturity). (6) Minimum 1 gram, max 4 kg per FY for individual.
SGB ADVANTAGES: (1) 2.5% extra interest beyond gold price. (2) MATURITY TAX-FREE (capital gains exempt for individuals — held to maturity). (3) NO making charges (vs physical 5-15%). (4) NO storage cost. (5) Government guarantee. PHYSICAL GOLD: 5-15% making charges + GST 3% + storage risk. NO interest. GOLD ETF: liquid + market price + 12.5% LTCG above ₹1.25L. SGB best for 5-8 yr holding period. STRATEGIC: tax-conscious investors prefer SGB for retirement portfolio.
EXIT BEFORE 8 YEARS: (1) AFTER 5 YEARS — exercise put option at interest payment dates. RBI buys back at prevailing gold price. (2) SECONDARY MARKET sale anytime — list on NSE/BSE. Lower liquidity, may sell at discount. (3) DEATH OF HOLDER — nominee gets bonds + interest. TAX ON EARLY EXIT: capital gains taxable. After 1 year hold: LTCG 12.5% above ₹1.25L. STRATEGIC: hold till maturity for tax-free benefit.
(1) SEMI-ANNUAL INTEREST 2.5% taxable at slab rate (added to 'Income from Other Sources'). (2) TDS: typically not deducted on SGB interest. Self-report in ITR. (3) MATURITY TAX-FREE: capital gain on redemption at maturity is EXEMPT for individuals (huge benefit). (4) PREMATURE EXIT: capital gain taxable. (5) NOTE: Interest income lowers SGB's effective post-tax return slightly. PURE returns: 2.5% taxed + gold price (untaxed at maturity).
SGB ISSUANCE: RBI announces tranches periodically (3-6 per year). PURCHASE: (1) Designated banks (SBI, HDFC, ICICI). (2) NSE/BSE during issue. (3) Online discount ₹50 per gram (for digital application). (4) Demat account or paper certificate. SECONDARY MARKET: trade on NSE/BSE between tranches. STRATEGIC: subscribe during issue for discount + lower transaction cost. Allocate 5-10% of portfolio to SGB for gold diversification + tax efficiency.