Sovereign Gold Bond Scheme- Things to Know
Do you know that a majority of middle-income Indian households buy 56% of India’s gold? Surprising, right? For a long time, gold has been a symbol of prosperity in India. As much as this precious metal is coveted, it comes with the risk of theft and the added responsibility of keeping it safe. Despite these factors, gold has always been a lucrative investment option for Indians.
To meet the high demand of this precious metal, we rely on imports which affects the macro fundamentals of the economy and eventually has a bearing on the currency. Acknowledging these issues, the Central Government proposed the issuance of Sovereign Gold Bond Scheme(SGB), via RBI.
SGBs were officially introduced in November, 2015, offering lucrative interest rates and tax exemption on capital gains. Read this article to learn about the Sovereign Gold Bond scheme, its features, uses, and much more!
What is a Sovereign Gold Bond?
The Reserve Bank of India (RBI) issued the sovereign gold bond scheme on behalf of the government. RBI brings multiple tranches of SGBs every year you can apply for an open SGB issue through your bank, post office, online platforms, as well through stock exchanges.
Considered as a substitute for holding physical gold, SGBs are denominated in multiple grams of gold with a basic unit of 1 gram only. The face value of the bond is fixed by calculating a simple average of the closing price of gold (999 purity) published by the India Bullion and Jewelers Association Limited (IBJA) for the last 3 business days of the week preceding the subscription period.
You only have to pay the issue cost in cash (up to a maximum of Rs. 20,000/-) or demand draft or cheque or electronic banking, and on maturity you will receive the market value of gold at that time. There are no additional charges levied on purchase of SGBs compared with GST and making charges on physical gold.
Apart from the potential of offering capital gains, these bonds also offer investors a fixed interest rate of 2.5% per annum, that is paid on a semi-annual basis.
The maximum subscription for gold bonds per fiscal year varies depending on the type of investor:
● An individual can invest up to 4 kgs.
● Hindu Undivided Families can subscribe for 4 kgs.
● Charitable institutions and trusts can get around 20 kg of gold per fiscal year.
● For joint investments, the 4 kg limit applies only to the first applicant.
The annual ceiling will include bonds subscribed under different tranches of the sovereign gold bond scheme during initial issuance by the Government and those purchased from the secondary market.
Sovereign Gold Bond Scheme 2023-24 Series 2
The issue date of the next SGB series, tranche 2, is scheduled to be open for subscription from September 11 to September 15, 2023. The issue price will be determined by calculating the simple average closing price of the last 3 working days of 999-purity gold as published by the Indian Bullion and Jewellers Association.
The SGB’s next issue date will be September 20, 2023, meaning the bond units will be allotted to you on this date. Additionally, if you apply online, i.e., via your demat account, you will get a discount of ₹50 per unit.
Features of Sovereign Gold Bond Scheme?
- Convenient to Buy and Hold: As RBI makes issues of the sovereign gold bond scheme in tranches. You can buy them in small tranches to avoid timing risks and high costs. Apart from being issued in a paper form, SGBs are also available in a simple Demat form, making them easier to liquidate in the secondary market.
- Interest Returns: The Reserve Bank of India gives interest rates of 2.5% per annum paid on a half-yearly basis. The interest is transferred directly to your account, while the last interest is paid with the principal amount on maturity.
- Redemption: On maturity, your investment in the sovereign gold bond scheme will be redeemed in Indian Rupees and the redemption price is based on the simple average of closing price of gold (999 purity) of previous 3 business days from the date of repayment. Both interest and redemption amount is credited to the bank account provided at the time of buying the bond.
- Tenure: The maturity period of gold bonds lasts eight years. However, early encashment/redemption is allowed after five years from the date of issue on coupon payment dates.
- Premature Redemption: In case of premature redemption, you can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Once the request is processed, the amount will be credited to your bank account provided at the time of applying for the bond.
- Tradability: Sovereign Gold Bonds are tradable and transferable. You can sell it to other potential investors on the stock exchange. However, only bonds held in demat form with depositories can be traded on stock exchanges.
- Low Risk: The benefit of the sovereign gold bond scheme is the it has none of the risks associated with physical gold such as theft, low-quality etc. Further, they are backed by the Government of India ensuring sovereign guarantee. However, there may be a risk of capital loss if the market price of gold declines.
- Taxation: The interest you earn on SGBs will be taxed as per your existing tax slab. However, the capital gains component is tax-free and the long term capital gains come with indexation benefits.
Who Is Eligible to Invest in the Sovereign Gold Bonds Scheme?
As per the Foreign Exchange Management Act, 1999, Indian residents are eligible to invest in the sovereign gold bond scheme. Eligible investors include:
- Trusts and Charitable Institutions
- Hindu Undivided Families
- Guardians of a minor
- Two people jointly can apply for a gold bond scheme
- Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption.
Crucial Things to Know Before Investing in SGB Scheme
Minimum Limit: You can invest in a minimum of 1 gram of gold
Maximum Limit: For individuals and HUF, the limit is 4 kg; for Charitable institutions and trusts, the maximum is 20 kg of gold per fiscal year.
Interest rate: The interest rate is 2.5% p.a., paid semi-annuallyReturns: The redemption price will be determined in INR based on the average price of the last 3 working days of 999 purity gold published by India Bullion and Jewellers Association Limited (IBJA) before the maturity date.
How to Buy a Sovereign Gold Bond 2023-24?
You can invest in the sovereign gold bond scheme from offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges. The application for subscription is also available on the RBI’s website. You can visit the commercial bank branches, post office or authorised agents’ office to physically fill out the application form and apply to the scheme. The process is fairly simple and convenient. Banks also allow you to invest in the scheme online.
You need to provide your KYC documents, pay the investment amount, and once the due diligence is complete, you receive a Holding Certificate issued by the RBI.
In case you miss buying the gold bond in the subscription window, you can also purchase gold bonds from the secondary market. You need a demat and trading account to buy or sell gold bonds on the stock exchange.
How to Buy a Sovereign Gold Bond 2023-24?
There is no guarantee of allotment of SGBs in the primary issue. The units are allotted on a lottery basis. If you subscribed to the bond, the units will be visible in your demat account on the date of allotment. If you invested offline, you can get the investment certificate from the issuing bank, SHCIL offices, Post Offices, Designated stock exchanges, or agents.
Additionally, you will get a digital copy of your investment certificate on your registered email address
Advantages of the Sovereign Gold Bonds
The interest you receive from your investment in the sovereign gold bond scheme is taxed as per your existing tax slab. However, one key advantage is that the capital gains component on redemption is tax-free. In case you transfer before the maturity period of 8 years, long-term capital gains are taxed at 20% with an indexation benefit. Another advantage is that you don’t have to pay any TDS on Sovereign Gold Bonds.
Sovereign gold bonds are transferable to other individuals. The government issues the bonds for an 8-year term. After the fifth year, you are eligible for early maturity and encashment. You can sell it to other qualified candidates before it matures.
Collateral against Loans
Sovereign Gold Bonds can be used as collateral when borrowing from financial institutions and non-banking financial companies. The SGB loan-to-value ratio is equal to the ordinary gold loan prescribed by the RBI. Furthermore, granting loans against SGBs is subject to the decision of banking institutions. The minimum and maximum loan amount also varies from bank to bank. The lending institution will demand the pledge of SGBs in Demat or a physical certificate form as security.
Less Hassle than Physical Gold
Unlike physical gold, you don’t have to worry about the storage of your investment in the sovereign gold bond scheme as no one can steal this paper gold. Further, the 3% GST that is levied on physical gold purchases, is not applicable on SGBs. As the redemption price of SGBs is the last three days’ average closing price of gold of 999 purity, you don’t have to worry about the quality and purity.
Disadvantages of the Sovereign Gold Bond Scheme
1. Long Maturity
The long maturity period of 8 years can discourage certain investors. However, this long tenure helps investors to avoid gold price volatility resulting in losses for the investors.
Your investment in SGB can result in a capital loss as the bond value is linked to the current price of gold. If the price at which you buy the bond is higher than the price at which you redeem it at maturity, you might end up in a loss.
SGB Calendar for Premature Redemption (April 2023 – Sept 2023)
|No||SGB Series||Issue Date||Date of coupon payment||Dates for submitting the request for premature redemption by the investors to the Receiving Offices/NSDL/CDSL/RBI Retail Direct|
|1||2015-I||November 30, 2015||30 May 2023||29 April 2023||20 May 2023|
|2||2016-I||February 8, 2016||08 August 2023||07 July 2023||28 July 2023|
|3||2016-II||March 29, 2016||29 September 2023||29 August 2023||20 September 2023|
|4||2016-17 Series I||August 5, 2016||05 August 2023||05 July 2023||25 July 2023|
|5||2016-17 Series II||September 30, 2016||30 September 2023||30 August 2023||20 September 2023|
|6||2016-17 Series III||November 17, 2016||17 May 2023||17 April 2023||08 May 2023|
|7||2016-17 Series IV||March 17, 2017||17 September 2023||17 August 2023||07 September 2023|
|8||2017-18 Series I||May 12, 2017||12 May 2023||12 April 2023||02 May 2023|
|9||2017-18 Series II||July 28, 2017||28 July 2023||27 June 2023||18 July 2023|
|10||2017-18 Series III||October 16, 2017||16 April 2023||16 March 2023||06 April 2023|
|11||2017-18 Series IV||October 23, 2017||23 April 2023||23 March 2023||13 April 2023|
|12||2017-18 Series V||October 30, 2017||30 April 2023||29 March 2023||20 April 2023|
|13||2017-18 Series VI||November 6, 2017||06 May 2023||06 April 2023||26 April 2023|
|14||2017-18 Series VII||November 13, 2017||13 May 2023||13 April 2023||03 May 2023|
|15||2017-18 Series VIII||November 20, 2017||20 May 2023||20 April 2023||10 May 2023|
|16||2017-18 Series IX||November 27, 2017||27 May 2023||27 April 2023||17 May 2023|
|17||2017-18 Series X||December 4, 2017||04 June 2023||04 May 2023||24 May 2023|
|18||2017-18 Series XI||December 11, 2017||11 June 2023||11 May 2023||31 May 2023|
|19||2017-18 Series XII||December 18, 2017||18 June 2023||18 May 2023||08 June 2023|
|20||2017-18 Series XIII||December 26, 2017||26 June 2023||26 May 2023||16 June 2023|
|21||2017-18 Series XIV||January 1, 2018||01 July 2023||01 June 2023||21 June 2023|
|22||2018-19 Series I||May 4, 2018||04 May 2023||03 April 2023||24 April 2023|
What is the Difference Between SGB and Physical Gold?
|Parameter||Sovereign Gold Bonds||Physical Gold|
|Type of Ownership||It can be owned in paper and electronic format. Certificates serve as proof of investment.||Can be purchased in the form of bars, coins, ornaments, and biscuits. A receipt is provided for every purchase.|
|Prices||The Indian government determines the issue dates. However, prices are market driven, and the government takes the last 3 days’ average price.||Prices are volatile and vary from time to time (market-dependent).|
|Liquidity||Liquidity available in the secondary market is very less and redemption can be done after 5 years.||It is easy to liquidate as it can be sold anytime in a jewellery store.|
|Investment tenure||The tenure is fixed at eight years by the RBI.||There is no fixed tenure for investment.|
|Lock-in period||Redemption can be done after 5 year, however, you can sell in the secondary market if demand is available.||There is no lock-in period.|
|Rate of interest||The interest rate is fixed at 2.5% per annum and interest is paid on a half-yearly basis.||The interest is not offered for investment in physical gold. Returns depend on the increase in gold prices.|
|Demat account||Having a demat account is not mandatory. But if you buy SGBs online, you must hold the units in a demat account.||There’s no requirement for a demat account.|
A sovereign gold bond scheme is a safe investment option that offers guaranteed interest rates with a maturity of 8 years. You can trade in the secondary market or participates in premature redemption if you wish to get cash early
They provide the option to own gold without worrying about safety as it is entirely virtual and digital. But, like any other financial market instrument, SGBs carry some disadvantages as well. Therefore, before investing in the sovereign gold bond scheme it would be best to discuss with your financial advisor if they are a good fit for your investment portfolio.
Where do I get the application for SGB?
Applications for sovereign gold bonds are available on both offline and online platforms. You can get the application form from the issuing banks, SHCIL offices, agents or designated post offices. You can also download it from the official website of the Reserve Bank of India. Many banks also offer online forms now.
Who can sell SGBs in India?
The Government of India sells these bonds through multiple channels such as Stock Holding Corporation of India (SHCIL), Banks, selected post offices and authorized stock exchanges either directly or through their agents.
Is there any risk involved in investing in SGB?
Sovereign gold bonds come with negligible risks. However, there is a risk of capital loss if the market value of gold declines. SGBs are linked directly to gold rates in the international market; hence they rise or fall depending on market rates.
What will happen after completing the 8-year tenure of SGB?
Once the bond reaches maturity after completion of 8 years, the bond will be automatically debited from your demat account, and you will receive the maturity amount in your demat-linked bank account.
Is Gold bonds better than Fixed deposits?
In terms of risk, both of these investment avenues carry some amount of risk, however, the returns in FD are fixed, but in the case of SGBs, it depends on the price of gold on maturity.
Can I sell the Sovereign Gold bonds any time?
Yes, you can sell an SGB at any time in the secondary market if a buyer is available. However, please note that the gains will be taxed according to LTCG or STCG, whichever is applicable.
Can I withdraw SGBs after 5 years?
Yes, you can withdraw SGBs after 5 years with the Reserve Bank of India.
Is it possible to purchase SGBs every month?
Yes, you can purchase SGB every month through the secondary market, i.e., NSE.
Which bank is best to invest in SGBs?
The price of SGB is the same in all the banks during the primary issue, therefore, you can invest through any bank. However, if you invest online through your demat account, you get a discount of ₹50 per unit.
What happens if the SGB holder dies?
If the holder dies, the nominee needs to approach the receiving office to file the claim. If there is no nominee, the executors of the deceased person need to submit the required documents to the receiving office.
Are SGBs tax-free?
Yes, the capital gains on SGB are tax-free if redeemed with RBI on maturity. However, the interest is taxable according to your tax slab under the head “income from other sources.”