SGBs are bonds issued by RBI on behalf of GOI. Here are few key features of SGBs:
Who can Invest: Resident individuals, HUFs, Trusts, Universities and Charitable Institutions (max limit is up to 4 kgs per financial year in case of Individuals/HUFs and 20kg per FY in case of others). SGBs will be issued in multiple of 1 gram each at average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited (IBJA) for the last three working days of the week preceding the subscription period. Discount of Rs. 50 is available for those who buy online.
Interest: 2.5% p.a. payable on semi-annual basis. Though TDS is not applicable on interest payment, interest is taxable.
Tenor: 8 years with an option of premature redemption after 5th year to be exercised on the date on which interest is payable. Redemption price is calculated at average of closing price of gold of 999 purity of previous 3 working days as published by IBJA (thus there is a chance of incurring loss on maturity date if redemption price is less than acquisition cost). No Capital gain tax arises on redemption on maturity (including pre-mature redemption) of SGBs by Individuals. In case of others, Capital gain (if any) is taxable.
Trading on Exchanges: SGBs issued will be listed on BSE/NSE and can be held in demat form. Hence one can sell SGBs on BSE/NSE (or sell via off-market transactions) prior to maturity though Capital gain tax is applicable for all including Individuals. In case bonds are held more than 12 months prior to sale, indexation benefit is available. On a different note, one can purchase earlier issued SGBs on NSE/BSE (if available at low price on exchanges compared to issue price of new SGB tranches). Another benefit of purchasing on exchanges is one can purchase SGBs maturing on different dates according to his/her personal goals (i.e. stagger his SGB exposure across multiple SGB maturities to meet specific life events like marriage, education etc.). However please note that liquidity of SGBs on exchanges may be lower*.
Loan/Gift: Loan can be taken against SGB subject to LTV norms. One can also gift SGBs to family members or others
Pros compared to Physical Gold: No making charges/wastage/purity issues/storage costs/GST/risk of theft or loss
Pros compared to Gold ETFs: a) Earns interest at 2.5%; b) Can be used as collateral against loan
* One may check for latest prices & liquidity at https://www.nseindia.com/market-data/sovereign-gold-bond