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How Gold Bond (e-Gold) scheme works? How to invest in Gold Bonds in India?

Updated on February 22, 2016

How Gold Bond(e-Gold) scheme works? How to invest in Gold Bonds in India?

Gold Bond scheme, also known as E-Gold, was launched in India to enable people to invest in Gold without physically holding them. It is similar to stocks. Like stocks, Gold bonds will increase in value based on market price of Gold. Gold is always a high value asset. Its value will not come down drastically anytime in the near future. Investing is Gold is therefore less risky as the returns are assured. On top of that, gold Bond schemes offer you a fixed interest rate on your Gold bonds. Hence, you get the twin benefits of Investment plus Returns. Gold Bonds are considered as assets, and therefore they can be used as collateral against borrowings like loans

Gold Bond scheme is a boon for India as almost all households have physical Gold but these mostly lie unused. Further, safety of Gold is an issue. Let’s say, a father buys 5 sovereigns of gold for her daughter when she is 10 years old. Generally, this Gold will lie unused in the house until she gets married. It will not earn any interest and stay as a dead investment. Further, when old gold ornaments are exchanged, there is considerable depreciation. By investing in Gold Bonds, one can hold asset equivalent to the market value of Gold as a well as earn interest on it.

You can buy e-Gold when the market price is low and sell it when the market price of Gold is high. E-Gold can be converted into physical Gold also. Recently, the RBI fixed the issue price of Gold bonds at Rs. 2600 per gram. RBI’s price was marginally higher than the price of physical Gold in the market.

Benefits: Since E-Gold is treated like Physical Gold, one will get capital gains benefits if held in the long term. However, E-Gold attracts Wealth Tax

Sovereign Gold Bond scheme: Sovereign Gold Bond scheme is a government Gold bond scheme offering an interest rate of 2.75% p.a over and above the prevailing market price. Interest will be credited directly into your bank account. Resident Indian entities including individuals, Hindu Undivided Family (HUF), charitable institutions etc can enroll for this scheme. Minimum size of investment is 2 grams of Gold.

Sometime ago, the Indian government launched a scheme called Gold Monetization scheme, under which one can deposit physical Gold and obtain a deposit interest rate of 2.25-2.50%

Gold Bond vs Gold ETF: Compared to Gold ETFs, Gold bonds offer a better return as the NAV (Net asset value) of Gold ETFs is calculated after deducting management fees and custodian charges. However, E-Gold attracts Wealth Tax.

How to buy Gold Bonds: One needs a demat account in order to buy E-Gold. One unit of E-Gold is equal to one gram of Gold. The units are traded on the National Spot exchange Limited (NSEL). You can buy Gold bonds from any branch of SBI, Post offices and other banks

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