Guide to the Sovereign Gold Bond (SGB) programme: Sovereign Gold Bonds (SGBs) provide investors with a guaranteed return in addition to a market-linked return on the precious metal, making them ideal for those seeking to invest in gold. Here’s another reason why gold bonds are vastly superior to other forms of investing in the yellow metal.
The Sovereign Gold Bond (SGB) is a government-backed programme that enables investors to earn a market-linked return on the precious metal in addition to a 2.5 percent interest rate. The RBI, on behalf of the Government of India, issues sovereign gold bonds denominated in grammes of gold — one unit of the bond is equivalent to one gramme of gold. According to financial planners, gold bonds are a lucrative way to invest in the precious metal due to the market-linked return and the interest (in addition to the return). The maturity duration of sovereign gold bonds is eight years, with the option of early redemption after the first five years under certain conditions.
- No risk of storage
- Cost-free storage
- Guaranteed yield at maturity
- Periodical curiosity
- No making expenses
- No danger of impureness
- Bonds are held in demat format on RBI records; there is no risk.
Investing in the Sovereign Gold Bond scheme carries any risk?
According to the RBI, there is a danger of capital loss if the market price of gold declines, even though the investor retains the same number of units of gold purchased. In other words, if gold prices decline after purchasing the SGBs, even though the value of the bonds falls proportionally, the same number of bonds can be redeemed in futures when rates recover.
Who can purchase government-issued gold bonds?
Individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions, in addition to Indian residents as defined by the Foreign Exchange Management Act, are eligible to purchase sovereign gold bonds. In addition, those whose residential status subsequently changes from resident to non-resident may continue to possess sovereign gold bonds until maturity or premature withdrawal.
Is there a maximum investment amount for sovereign gold bonds?
Individuals are permitted to purchase up to 4,000 units, or four kilogrammes of gold, per fiscal year. Similarly, the same limit applies to HUFs. Trusts and related entities are permitted to purchase up to 20,000 units (20 kg).
One gramme of gold is the minimum permissible investment for all types of investors, for SGBs subscribed to in various tranches and those purchased on the secondary market.
Purchases of sovereign gold bonds can be made jointly or in the name of a minor.
Yes.
In the case of common ownership, the 4 kg limit only applies to the first applicant. The bonds are eligible for conversion to demat under the Government Securities Act of 2006, under which they are issued as Government of India Stock.
Can each member of the family purchase sovereign gold bonds?
Yes.
What is the applicable interest rate for SGBs?
Annual interest rates on sovereign gold bonds are 2.5% per year.
How frequently are interest payments made on sovereign gold bonds?
Interest is credited to the accounts of bondholders every six months.
Where can sovereign gold bonds be purchased?
Directly or through agents, nationalised banks, private banks, foreign banks, designated post offices, the Stock Holding Corporation, and authorised stock exchanges may offer sovereign gold bonds.
Do all applicants receive the sovereign gold bond allocation?
Customers who meet the eligibility requirements, provide a genuine form of identification, and submit the application fee on time will receive the allocation.
Are sovereign gold bonds available online?
Yes.
Does a discount apply to sovereign gold bonds?
Those who register digitally receive a discount of Rs 50 off the price of the offering.
What are the hours for bidding on sovereign gold bonds?
Similar to initial public offerings, sovereign gold bonds are available for bidding on applicable days from 10 a.m. to 5 p.m.
What are the numerous payment methods accepted for purchasing gold bonds?
The acceptable methods of payment are cash (up to Rs 20,000), demand draught, cheque and electronic banking.
When will the subsequent issue of gold bonds be available? When can you next invest in SGBs?
The subscription period for the second series of Sovereign Gold Bonds for the fiscal year 2023-2024 will be from September 11 to September 15, 2023. The bonds will be issued on September 20, 2023, per an official announcement.
The first series was available for subscription between June 19 and June 23, 2023, and it was released on June 27, 2023.
How are the prices set for sovereign gold bonds?
The price of SGBs is determined in rupees using a straightforward average of the closing price of gold of 999 purity, as reported by the India Bullion and Jewellers Association (IBJA) on the last three working days of the week preceding the subscription period.
Can you apply for a loan using your sovereign gold bond holdings as collateral?
Yes, SGBs can be used as collateral for loans, with the same loan-to-value (LTV) ratio applicable to any ordinary gold loan as periodically mandated by the RBI.
What are the tax consequences of purchasing sovereign gold bonds?
According to the Income Tax Act of 1961, interest on savings bonds is taxable. However, the capital gains tax on the redemption of SGBs by an individual is exempted, and indexation benefits will be provided for long-term capital gains accruing to any person upon the transfer of SGBs.
SGBs in comparison to other investments
Compared to government bonds and fixed deposits, SGBs provide a guaranteed annual return of 2.5% on the initial investment. In contrast to fixed deposits, which are subject to a specified lock-in period, SGBs and government bonds offer high liquidity and are tradable on the secondary market.
Despite the RBI reducing the number of SGB issues for the fiscal year 2023-24 to just two series, the potential for a long-term investment and the security of a guaranteed return make this scheme an attractive investment option for investors. Financial planners advise that you keep an eye out for the September release of the next SGB series in order to seize this golden opportunity.
