Sovereign gold bond is a substitute for holding physical gold. The bonds are issued by the Reserve Bank of India (RBI) on behalf of the government and is a bond denominated in gold. The government issues such bonds in tranches at a fixed price that investors can buy through banks, post offices and also in the secondary markets through the stock exchange platform.
These bonds are backed by a sovereign guarantee and can also be held in demat form. Further, they are priced as per the underlying spot gold prices. Hence, investors who want to invest in gold can buy the bonds without worrying about safekeeping of physical gold along with locker charges, making charges or purity issues. Plus, these bonds offer an interest at the rate of 2.5% per annum on the principal investment amount. While the interest on the bonds are taxable, the capital gains at the time of redemption are exempt from tax. These bonds can also be used as collateral for availing loans from banks and NBFCs.