Image Source: GoldenPi
As gold prices continue to soar—touching ₹1,11,075 per 10 grams in Delhi—parents and guardians are increasingly exploring Sovereign Gold Bonds (SGBs) as a secure, government-backed investment option for minors. These bonds, issued by the Reserve Bank of India (RBI) on behalf of the Government of India, offer a unique blend of capital appreciation, fixed interest, and tax benefits without the risks of storing physical gold.
With the latest tranche of SGBs open for subscription, this is an opportune moment to understand how minors can participate in this long-term wealth creation tool. Here are five essential things to know.
Key Highlights of SGBs for Minor Investors
SGBs are denominated in grams of gold and offer a fixed annual interest rate of 2.5 percent, paid semi-annually.
Bonds have an eight-year maturity period, with an option to exit after five years.
Capital gains on redemption are tax-exempt if held till maturity.
Bonds are tradable on stock exchanges and can be used as collateral for loans.
Minors can invest through guardians, making it a viable option for early financial planning.
1. Guardians Must Apply on Behalf of Minors
Minors are not permitted to directly apply for SGBs. A parent or legal guardian must submit the application on their behalf. The guardian is responsible for managing the investment, including documentation, payments, and eventual redemption. This ensures that minors can begin their investment journey securely and legally.
2. KYC Compliance Is Mandatory
To invest in SGBs for a minor, guardians must provide complete Know Your Customer (KYC) documentation. This includes:
PAN card of the minor
Aadhaar card or other valid ID
Proof of guardianship
Bank account details for interest payouts
Applications must be submitted through authorized banks, post offices, or designated stockbrokers.
3. Investment Limits Apply to Minors Too
The minimum investment is one gram of gold. The maximum annual investment limit is four kilograms per individual, including minors. This ceiling applies whether the investment is made individually or jointly. The limit ensures responsible investing and aligns with RBI’s guidelines to curb excessive demand for physical gold.
4. Long-Term Wealth Creation with Tax Benefits
SGBs are ideal for long-term financial planning. The eight-year tenure allows for steady capital appreciation linked to gold prices. Additionally, the fixed interest payout provides a predictable income stream. If held till maturity, capital gains are exempt from tax, making it a tax-efficient investment for minors.
5. Liquidity and Flexibility
Though designed for long-term holding, SGBs offer flexibility. Investors can exit after five years on interest payment dates. Bonds are also tradable on stock exchanges, providing liquidity. Moreover, they can be pledged as collateral for loans, offering financial flexibility without liquidation.
Conclusion
Sovereign Gold Bonds present a compelling opportunity for minors to begin their investment journey under the guidance of guardians. With gold prices on an upward trajectory and the backing of the Government of India, SGBs offer a safe, tax-efficient, and growth-oriented avenue for wealth creation. As financial literacy grows among younger generations, tools like SGBs can play a pivotal role in shaping responsible and informed investors from an early age.
Sources: Livemint, SBI Sovereign Gold Bond Scheme, Bajaj Finserv SGB Updates
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