The Sovereign Gold Bonds Model & Salient Features of Investing In Gold Bonds

Dec 18, 2016 12:45 IST 693 views

In the current volatile scenario having your investments diversified into a safe haven like Gold is a mandatory portfolio management practice. Keeping physical gold is preferred in form of jewellery but keeping investments in the yellow metal in physical form is both risky and purposeless unless you convert them into ornaments.

That’s where the Sovereign Gold Bonds come into play; they have all the traits of the physical gold apart from the physical form itself. It’s paper gold. They are backed by the government of India so needless to say they’re secured.

The Sovereign Gold Bonds Model

When an investor buys a gold bond he gets a paper against his purchase rather that the physical gold. Thereby, this already eases off the security concerns with the physical gold coin or bar. These can be also be transacted in the Demat form. Like the physical gold, one can use it as collateral for loans too.

Issue Price:

The price of the bond will be fixed in Indian Rupees on the basis of the simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited (IBJA) for the week (Monday to Friday) preceding the subscription period.

Payment Option:

Payment for the Bonds will be through cash payment (up to a maximum of Rs 20,000) or demand draft or cheque or electronic banking.

Interest Rate:

The investors will be compensated at a fixed rate of 2.50%/annum payable semi-annually on the nominal value of the investment.

Redemption Price:

The redemption price will be in Indian Rupees based on previous week's (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.

Salient Features of Investing In Gold Bonds:

Better Returns: Gold bonds along with price appreciation provide the investor with interest income.
Security: The demat or paper form of Gold Bonds help in making storing them conveniently.
Assured Purity and liquidity: Since they are backed by the government we can be assured of its quality and liquidity during early redemption.

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