What is the minimum permissible investment in Sovereign Gold Bonds?
Gold investments are one of the most traditional ways of investing and saving. It serves as an asset for people and acts as a hedge against inflation. It is an excellent method for securing people’s hard-earned money. But buying gold gives people stress about its safety. Therefore, the Government has launched an easy way to invest in gold by eliminating the risk of storage and safety. In this article, we will learn more about the sovereign gold bond and what are the minimum permissible limits for investment.
What is Sovereign Gold Bond (SGB)?
Sovereign Gold Bonds are government securities denominated in grams of gold. The Reserve Bank of India issues these bonds on behalf of the Government of India. They are the best alternatives for holding gold. The Sovereign Gold Bond Scheme was launched in November 2015 by GOI. Investors can buy SGB by paying the issue price in cash and redeeming the bonds in cash on maturity.
Features of SGBs
Denominations: These bonds are denominated in multiple grams of gold with each 1-gram unit.
Issuer: The bonds are to be issued by the Reserve Bank of India on behalf of the Indian Government.
Tenure: The bonds have a term period of 8 years which can pre-mature with RBI after end of 5 years at interest payment dates or can be sold in secondary market as well.
Minimum Quantity: The investor will have to invest a minimum of 1 unit, that is, 1 gram of gold.
Payment: The investor will make the payment at the issue price in cash and can redeem the bonds in cash on maturity.
Interest: Interest on these bonds is paid at a fixed rate of 2.5% semi-annually on the issue price of bond.
Advantages of SGBs
- Hassle-free investment- investing in SGBs is hassle-free as it eliminates the risk of storing physical gold and have sovereign guarantee.
- Money saving scheme: SGB scheme helps to save money as you don’t have to pay the making charges applicable on the physical gold/jewellery and additionally earns 2.5% p.a. interest on issue price of bond.
- Long-term investment: SGB’s tenure is eight years. Hence, it serves as the best option for long-term investments.
- Tradability: These bonds are traded on the stock exchanges. Therefore investors can directly trade it online however volumes are lower and sometimes it traded on discount.
- Tax-free purchase: Investment in SGBs is free from taxes. So, the investor will not have to pay any GST, which he would have to pay while purchasing actual gold.
- No Tax on Maturity: If an investor redeems with RBI, tax on capital gains earned is NIL, however interest is taxable as usual.
- Indexation Benefit: If an investor chooses to transfer their bonds before they mature, they will be entitled to receive benefits from indexation.
- Online discount: The Reserve Bank of India offers a special discount of Rs 50 per gram less than the fixed value to those who will trade online for these bonds and make an online payment.
Who can invest in SGBs?
SGBs prove to be a profitable investment option in the market providing huge benefits to investors. Eligible persons to invest in SGBs are-
- Indian residents– Residents as defined under Foreign Exchange Management Act, 1999 will be eligible to invest in SGBs.
- Groups and Individuals- These persons include individuals, trusts, HUFs, charitable institutions, universities etc. If there is a change in the residential status of the individual, then the individual can hold the bonds till the date of its maturity.
- Minors- on behalf of the minors, parents or their guardians can purchase SGB bonds.
Process to invest in SGBs
- Application form- The first step to investing in SGBs is to fill out an application form. The investor can fill out the form either by visiting the issuing bank or can also download the form through the RBI website, they can also invest through broker/bank digitally.
- Documents- After filling out the form, the investor needs to provide the required documents. The major requirement is Permanent Account Number (PAN). Without providing the PAN details, the process will not be executed. Know Your Customer (KYC) will be processed by the issuing banks, brokers, post offices or agents to complete the process.
- Designated Agencies– The investor can invest in SGBs through the branches of Scheduled Foreign and Private Banks, the Stock Holding Corporation of India, Stock Exchanges, Nationalized Banks, Designated Post Offices and their agents.
- Online application- Investors can also invest in SGBs online, applying online will give the benefit of paying ₹50 per gram less than the nominal value of the gold.
Tranches by RBI- SGBs are open to subscription in tranches by the Reserve Bank of India, some of the past issued tranches details are as follows:
|Tranche||Subscription Date||Issuance date|
|2021-22 Series VII||25 October-29 October 2021||2 November 2021|
|2021-22 Series VIII||29 November- 3 December 2021||7 December 2021|
|2021-22 Series IX||10 January- 14 January 2022||18 January 2022|
|2021-22 Series X||28 February- 4 March 2022||8 March 2022|
|2022-2023 Series IV||06 March- 14 March 2023||14 March 2023|
What are the Minimum and Maximum permissible investment in Sovereign Gold Bonds(SGBs)?
Sovereign Gold Bonds are government securities denominated in grams of gold. These bonds are denominated in multiple grams of gold with each 1-gram unit.
Minimum investment- The Minimum permissible investment in Sovereign Gold Bonds(SGBs) will be one gram of gold.
Maximum investment- The maximum permissible investment is (Include both primary and secondary purchase)-
- For individuals- Maximum limit of subscription of 4 kg gold for individuals is allowed per fiscal year (April – March).
- For Hindu Undivided Family (HUF)- A maximum limit of subscription of 4 kg gold for HUFs is allowed per fiscal year (April – March).
- For Trusts and Companies- Maximum limit of subscription of 20 kg gold for companies, trusts and other entities is allowed per fiscal year (April – March).
Sovereign Gold Bonds(SGBs) are one of the best alternatives to invest in physical gold. The bonds are issued by the Reserve bank of India(RBI) on behalf of the Indian Government. The bonds are denominated in grams of gold with a minimum investment of one gram of gold and a maximum of 4kg of gold for individuals and HUFs and 20kg of gold for companies and other entities in a fiscal year. The investor can apply for these gold investments either directly by visiting the issuing banks/brokers or through agents. The issue price will be paid in cash through cheques or online mode and the redemption will also be credited in the bank account details as provided by the investor. Redemption can be at the 8th year of the issue date. Premature redemption can also take place after the 5th year of the issue date of the bond.
Frequently Asked Questions (FAQs)
What are taxes applicable on SGB investment?
Taxes on the interest arriving from SGB is taxable as per the provisions of the Income-Tax Act of 1961. Short-Term capital gains arising from the sale of the bonds are taxable in the same way by adding the income to the total income of the individual and according to the applicable taxes. While Long-Term capital gains are taxable at 20% (if indexation is availed) or 10% (if indexation is not availed). If a bond is held till maturity, long term capital gains are exempt.
Can an investor invest in SGB through a Demat account?
Yes, SGBs can be kept in a Demat account and can be traded through it.
Can SGBs be used as collateral for loans?
Yes, an investor can use SGBs as collateral to avail of loans from financial institutions and banks.
Is there any risk involved in investing in SGB?
Although the investor can never lose in terms of the units of gold which he has paid for, but there may be risks of capital losses which may occur due to a decline in market prices of gold.
Is joint holding allowed in SGBs?
Yes, joint holding is allowed in SGBs.
What is the minimum permissible size of investment in sovereign gold bonds per fiscal year to individuals?
The minimum permissible size of investment in sovereign gold bonds per fiscal year to individuals is 1 unit of SGBs which is 1 gram of gold.
What is the maximum subscription an individual can make in sovereign gold bonds issued by the Government of India?
The maximum subscription an individual can make in sovereign gold bonds is equivalent to 4kgs of gold.
Can I buy multiple SGB?
Yes, you can buy multiple SGBs but the total quantity bought in a fiscal year should not exceed 4kgs of gold for individuals and HUFs and 20kgs for companies and trusts.
What is the minimum maturity period of sovereign gold bond?
SGBs have 8 year maturity period. However, you can redeem and sell SGBs after 5 years subject to 20% LTCG + indexation benefits.
How much should I invest in Sovereign Gold Bond?
The amount you want to invest in SGBs should depend on your investment goals and risk appetite. However, SGBs are a good investment to earn fixed returns while saving taxes.