Sovereign Gold Bond (SGB) Scheme

sovereign gold bond scheme

Table of Contents

We Indians love gold so much that India is one of the largest Importers of physical gold and import 800-900 tonnes of gold every year. That results in a trade deficit for India. To remove this situation government of the India came with the wonderful scheme of Sovereign gold bond (SGB) for its Resident citizens.

Our elders used to advise us to invest in gold because it’s safe and also gold proved it by thousands of years. IMF, Different Countries manage gold reserves . So there is no doubt on importance of the gold in one’s investment portfolio .

However There are many ways to Invest in gold like Physical gold in form of Bars and coins, Jwellery , Gold ETF and Sovereign Gold Bond . Out of all the above different options Sovereign gold bond is the most efficient way to invest in gold & we will discuss it now

Basic Information about Soverign gold Bond

Soverign gold bond is issued by Government of India , However for its proper functioning like Issue, redemption etc.. Govt appointed RBI . So Soverign gold bond is safer than anymode because government of India is the issuer for it.

Eligibility criteria :who can invest in sovereign gold bond(SGB)?

  • Individual,
  • HUF
  • Trust
  • Charitable Institute & Education Universities

which are resident in India under FEMA 1999 are eligible to Invest In Soverign gold Bond.

What is the Rate of Sovereign Gold Bond (SGB) ?

The rate of issue of Sovereign gold bond is the average of the last 3 preceding days of the opening of the issue of Bond so during the sovereign gold bond application period of 5 days rates are unchanged.So even though during the period of issue rates may be change of gold in physical market but Investment in soverign gold bond will be at the rate specified by the RBI . Also , RBI will annouce this rate 2 days before the opeing of the issue .The same concepts are applicable to the redemption of SGB

Minimum and maximum investment limit to Invest In SGB:

  • Individual and Huf -Minimum 1gm and maximum for 4 kg
  • trust and charitable institute- Minimum 1gm and Maximum 20kg  per financial year.

This limit is calculated based on the PAN number of the Investor , So If you subscribe Sovereign Gold Bond through different brokers or channel still you can maximum invest upto specified limits only.

How to Invest In the Sovereign Gold Bond?

Investor can be invest using online or offline mode. Investor can use online Demat of their existing share broker or can use physical mode like post office , designated Banks .

If investor use online mode and make payment online then s/he will get discount of Rs 50 per gram on issue price

Time period:

There is a lock-in period of 5 years when you invest in the sovereign gold bond so you can not redeem it until the period expired but you can take loans on it and RBI has given clear instruction that loan to value ratio of Sovereign gold bond will be the same as physical gold so investment in sovereign gold bond gives you the same advantage of physical gold, However, sovereign gold bond will auto redeem by the government after 8 years of Initial purcahse

Interest Rate on Sovereign gold Bond(SGB):

Apart from the capital gain in an increase in the price of gold investment in sovereign gold bond give you an added advantage that is 2.5% interest on Invested capital so Sovereign gold bond gives you more benefits than traditional gold investments.

Joint holding in Sovereign gold Bond:

In the case of Joint holding Investment, the limit of sovereign gold bond wholly apply to the First holder when they make an investment so the limit will not apply proportionately

e.g suppose there is couple A and B , & they applied jointly for the SGB for 4kg and Mr A was first holder in that application then for rest of the year Mr A can not invest in its own name , However Mrs B still has own 4kg limit without any dilustion.

Minor investor :

If you want to purchase an investment in the name of a minor then you can do so but the guardian is compulsory in the case of Minor also the KYC of the Minor should be done before the investment in the Sovereign gold bond

Taxation of Sovereign gold bond:

If you transfer a sovereign gold bond before the maturity then it’s liable to LTCG with Benefits of Indexation However, if your bonds are redeemed at maturity then there is no capital gains will apply so all the proceed is tax-free Interest on SGB is liable to the normal tax rate

Comparing Sovereign gold bond with Physical gold & Gold ETFs

ParticularsSovereign Gold BondsPhysical GoldGold ETF
ReturnsMore than actual gold returnLess than actual gold returnLower than actual return on the gold
Government guaranteeYesNo availableNo
Interest IncomeYesNoNo, since no dividend on Gold ETF
AMC chargesNo NoYes
Lock In period5 yearsNoNo
LiquiditylimitedHighly liquidHighly liquid
TradabilityAfter 5th year on exchangeConditionalAnytime on exchange
PurityHighestPurity is questionableHighest
storage chargesNoYesNo
collateral against loanYesYesNo
Quality check requireNoYesNo

FAQs

Can I contact RBI if I need to question regarding SGB?

Investors can mail their queries to them at sbg@rbi.org.in

Which are the authorised agencies for Sovereign Gold bond schemes?

Investors can purchase SGB through Nationalised Banks, Scheduled Private banks, Scheduled Foreign Banks, designated Post Offices and Stock Holding Corporation of India Ltd. and the authorised stock exchanges either directly or through their agents(stock brokers).

Are there any risk in Sovereign gold bond?

Sovereign Gold bond is issued by government of India So provide highest guarantee when it comes to default risk , However investor has capital loss if gold prices decline significantly

What happens in case of death of the investor?

In the case of death of the Investor ,Nominee of the investor can claim the units of Sovereign gold bond

Can I transfer the sovereign gold bonds?

Yes , you can transfer units of SGB before maturity to anyone who fulfilled the eligibility criteria of the SGB

How is the rate of sovereign gold bonds decided?

The rate of the bond will be based on simple average of closing price of gold (999 pure) published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period.