Should You Buy SGB From the Stock Exchange?

7 min read • Published 2 January 2023
Written by Vaibhav Khandelwal

Gold has always been India’s most popular investment avenue, with emotional and cultural sentiments attached to it. There are several ways to invest in gold: physical gold, gold mutual funds, gold exchange-traded funds (ETFs), digital gold or sovereign gold bonds.

With the first tranche of SGB that matured on November 30, 2023, SGB has gained popularity among individuals. Since there is no risk of theft and tax benefits, it is a good option for investing in Gold.

The RBI has announced two new tranches of SGB, i.e., series 3 & 4, for the financial year 2023-24; let us discuss SGBs and the benefits of buying them from the stock exchange.

What are Sovereign Gold Bonds?

Sovereign Gold Bonds (SGBs) are a type of government security that is issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are issued in denominations of one gram of gold and are linked to the market price of gold. SGBs are a popular investment option in India that offer several benefits, such as safety, liquidity, tax efficiency, high returns, and government backing. SGBs are linked to the market price of gold and also offer 2.5% p.a. of fixed interest (payable half-yearly) on the face value (issuance price) of SGB.

How to Buy SGBs?

The RBI, on behalf of the Government of India, issues SGBs during every financial year in different tranches. You can buy these bonds through commercial banks, post offices, online platforms and stock exchanges. Please note that the RBI offers a discount of Rs. 50 per unit of bond for the investors who buy online.

If you miss the chance to buy the SGB in the primary issue, you can also buy them from the secondary markets.

Points to Consider Before Buying SGBs from the Stock Market 

SGBs can also be purchased from the secondary market through the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

  • The price of SGBs on the secondary market is determined by demand and supply, similar to any other securities.
  • SGBs are typically traded at a discount to the spot price of gold.

Points to Consider Before Buying SGBs in the Primary Issue

SGBs are issued by the RBI (also called primary issuance) in various tranches throughout the financial year.

  • You can purchase SGBs from commercial banks, post offices, online portals, and stock exchanges.
  • A discount of ₹50 per gram is offered to investors who apply for bonds online

Benefits of Buying Sovereign Gold Bonds from the Stock Market

1. Gold at Discount: Like any other securities, the price of Sovereign Gold Bonds (SGBs) on stock exchanges is determined by the forces of demand and supply. However, due to their low trading volume, SGBs trade at a discount to the spot price of gold. This presents a great opportunity for investors to purchase the highest purity of gold at a lower price than the prevailing market rate. In fact, buying SGBs from the secondary market can prove to be a cost-effective way to invest in gold, especially for those who missed out on the primary issuance.

2. Taxation: One major advantage of investing in Sovereign Gold Bonds (SGBs) is the tax benefits. If an investor redeems SGBs at maturity or during the pre-mature window directly with the Reserve Bank of India (RBI), no taxes are levied on the capital gains. However, taxes must be paid on the interest received. The same applies when purchasing these bonds from the secondary market with a residual maturity.

3. Interest: Investors also get 2.5% p.a. interest on the face value (issuance price) of SGB even if they buy SGB from the secondary market.

Process of Buying SGBs in The Stock Exchange

To buy SGBs through the stock market, kindly follow the mentioned steps:

  1. You can find the discounted SGB/high-yielding SGB here.
  2. Search the SGB scrip code in your demat account and place a buy order.
  3. The bonds will be credited to your demat account within T+1 working day of the transaction.

Should You Purchase SGBs from the Secondary Market?

Buying SGBs from the secondary market can be lucrative. The price of SGBs can vary based on the remaining maturity period. It is advisable to choose the bonds with a longer residual maturity period, as they often trade at a better discount than those with a shorter maturity period.

Buying SGBs from the secondary market can be a good option for investors looking to add gold to their portfolio at a lower price.

Final Words

The introduction of Sovereign Gold Bonds has made gold investment much more accessible. The investment is open in primary and secondary markets both. You can notice a low trading volume of SGBs in the stock exchanges. However, an investor may get many benefits if they purchase it from the secondary market, such as tax benefits. The benefits increase when an investor buys an illiquid series and a low trading price compared to the current market price or new issue price.

Reference Link

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1984145

FAQs

Should you buy SGB from the exchanges at a discounted price?

If you miss the chance to apply for SGBs during the primary issuance, you can invest in them through the stock exchanges. Most SGBs are traded at a discount from the spot price in the secondary market. This is due to the poor price discovery mechanism and lack of enough liquidity. However, the fact that SGBs are traded at a discount in the secondary market shouldn’t be the only deciding factor for you to invest in SGBs. Investing might not be a good option if you can’t hold the SGBs until maturity.
This is due to two reasons. Firstly, you won’t get the tax benefit. And secondly,SGBs are traded at a discount to the spot price of gold, so you may not get the full value of your investment if you sell them before maturity.

What are the 5 key things to consider when buying SGB from the stock market?

Here are 5 key things to consider when buying SGB from the secondary market: 
1. The discount to the spot price of gold.
2. The liquidity of the SGBs.
3. The interest rate on the SGBs.
4. The maturity date of the SGBs.
5. Your own investment goals and risk tolerance.

Why should I assess the liquidity factor when buying SGBs from the secondary market?

The liquidity factor is important to consider when buying SGBs from the secondary market because it affects how easily you can sell them if you need to. If the SGBs are illiquid, you may have difficulty selling them quickly and at a good price. Therefore, it is important to assess the SGBs’ liquidity before buying them.

Can I buy SGB in the stock market and hold it till maturity?

Yes, you can buy SGB from the secondary market and hold it till maturity.

Can I sell SGB in the secondary market before 5 years?

Yes, you can sell SGB before 5 years, but it will be subject to capital gains tax based on your period of holding.

Can I sell SGB in the stock market before maturity?

Yes, you can sell SGB in the secondary market before maturity

What happens if I sell SGB in secondary market?

If you sell SGB in the secondary market before the completion of 1 year after investment, your gains will be charged as short-term capital gains (STCG) tax. However, if you sell SGB in the secondary market after 1 year, you will be charged capital gains at a flat 10% without indexation benefits or 20% with indexation benefits. 

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Vaibhav Khandelwal

Credit Principal
Vaibhav is Chartered Accountant by profession, having experience of 4+ years in banking & finance sector. Since past one year associated with Wint Wealth as Credit Principal. Previously worked with Northern Arc Capital for 2 years in FI-Credit Team and AU Small Finance Bank for 1 year in LAP-Credit Team.

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