Sovereign Gold Bonds (SGB) - Regular Income from Gold

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Sovereign Gold Bond (SGB) is bestowed by RBI (Reserve Bank of India) on behalf of the Government of India to save Gold digitally. This investment cum savings scheme was launched by the Govt. of India in November 2015 under Gold Monetisation Scheme (GMS).

Digital Gold is always preferred for its security. Due to its digital form, there are no chances of being lost or stealing it. A Gold with an assured periodical interest makes it a bit more attractive. The Sovereign Gold Bond (SGB) is a unique gold investment that lets you invest gold in digital mode and also earn a fixed interest from that investment. 

An individual can purchase SGB from any authorized banks, post office, recognized stock exchange. The SGB is only available in units. A unit is equal to 1 gram or one single bond. As an example, to purchase 10 grams of gold, you have to purchase 10 units of gold bonds.

The Sovereign Gold Bond is available to purchase both offline as well as online. As of now, the online purchase mode offers an additional Rs. 50 discount on each unit. 

As of now, the current rate of interest is 2.50% per annum on the initial investment. The interest will be credited semi-annually to the linked bank account. The income from interest is taxable.

The bond ideally stores in Demat form if the buyer provides Demat account details otherwise it stores in RBI's book. 

At the time of redemption, the investor will receive the market value of gold at that time.

Check Live Gold Rate

Features of Sovereign Gold Bond

The Interest Rate

The Sovereign Gold Bond offers a 2.5% rate of interest per annum and paid semi-annually on the initial purchase value. The interest of the gold bond paid to the linked bank account. The last installment of interest received with the maturity amount.

Investment limit under Sovereign Gold Bond (SGB)

The Sovereign Gold bonds are measured by units. A single unit SGB means a one gram digital gold. Eg. 1 unit = 1 gm. and 4000 unit = 4 kg. The minimum investment under SGB is 1 unit and a maximum of 4000 units in a financial year for individual investors including HUFs. However,  trust and recognized institutions are eligible to purchase a maximum of 20000 units or 20kg.

Online discount on SGB

The Government of India has declared a discount of Rs 50 per gram for online investors. As an example, if one purchases 10 gm gold with a base price of Rs 5300 per gm, he/she get the discount (10 * 50) = Rs 500. Eventually, an online investor gets an instant discount of Rs. 500 and the reduced purchase price will be Rs. 53000 - Rs. 500 = Rs 52500.

Bond Tenure under Sovereign Gold Bond (SGB) Scheme

The Sovereign Gold Bond comes with 8 years of tenure and 5 years of lock-in. The exit option from the 5th year can be used on the date of payment of interest. If the investor converts the bond into Demat form, then the units of the bond can be sale off via stock exchange after 5 years. 

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Loan as collateral

An individual can produce Dematerialized Sovereign Gold Bond as collateral during a loan application. Authorized Banks, financial institutions, and also Non-Banking Financial Companies (NBFC) offers loan against Sovereign Gold Bond. 

The loan to value (LTV) ratio will be the same as the ordinary gold loan that is determined by RBI. The loan ratio revised occasionally. The bank or any financing agency will have the right to decide on the disbursement of loans against SGB and cannot be presumed the exact matter.

Tax benefits

The interest from Sovereign Gold Bond is taxable under the IT Act, 1961 (43 of 1961). In the case of SGB redemption to any person, the capital gain raised is waived. GST on the purchase of SGB is also exempted. In the case of bond transfer, an individual will get separate benefits for long term capital gain.

Bond Certificate

At the time of purchase, an investor gets an acknowledged receipt of the purchase. The certificate gets issued a few days later after purchase. The certificate issuance date is mentioned in the bond tranches brochure. After issuance of the certificate, the subscriber can collect it from his/ her purchase point like authorized banks, post-office, SHCIL office, agent. 

If anyone purchases the bond online, then he receives the soft copy of the certificate to his/ her registered email address.

The certificate will bear the customer's name and the unit of gold.

Offline Payment Option

To purchase SGB offline, an individual can choose an option to make the payment:

• Payment through cash up to Rs 20,000 is available.
• Cheque, demand draft, and also electronic fund transfer is applicable.

Nomination Facility

During the purchase, an investor can put nominee information. SGB allows adding up to two individuals as nominees with separate unit allocations. However, the option of adding nominees is optional. In the event of the uncertain death of a bondholder, the units of gold according to the latest price will be returned to nominees.

How to Redeem Sovereign Gold Bond?

Though the tenure of the Sovereign Gold Bond is 8 years, the individuals are allowed to redeem after the 5th year from the bond issue date.

In case of redemption, thirty days before the coupon payment date, the investor can approach banks/agent/SHCIL (Stock Holding Corporation of India Limited) /post-office. 

Premature redemption request will be allowed, if the investor approach to the bank and other institution at least one day before the coupon payment date.

On redemption, earnings will be credited into the customer's linked bank account.

If the account is in Demat form, the holder can trade gold anytime in the stock exchange.

Eligibility criteria of purchasing Sovereign Gold Bond

• All residents of India are eligible to buy Sovereign Gold Bond.
• Persons who reside in India as defined under the Foreign Exchange Management Act (FEMA), 1999 are eligible.
• There is no age limit for SGB buyers
• Joint members can hold Sovereign Gold Bond
• On behalf of Minor, a legal guardian can purchase Sovereign Gold Bond
• Hindu Undivided Family (HUF) members are allowed for this bond
• Universities, trusts, and charitable institutions can purchase SGB

Check Live Gold Rate

KYC Documents

The process of purchasing a digital gold bond through the Sovereign Gold Bond (SGB) scheme can be achieved easily. If the buyers choose the offline mode, then he/ she have to produce the following documents:

• KYC form
• Identity Proof
• Aadhaar card
• PAN card
• Photograph

How to purchase Sovereign Gold Bond?

An individual can purchase Sovereign Gold Bond both offline and online during the tranches. RBI provides SGB for purchases in tranches in a financial year.

For offline purchases, the investor needs to visit authorized banks or post offices.

How to purchase Sovereign Gold Bond online?

The Sovereign Gold Bond allows individuals to purchase bonds online. Gov. of India is also promoting online mode and providing some extra benefits. With online an individual gets a flat discount of Rs. 50 per gram/ unit of SGB. And online mode is completely paperless.  There is no requirement for submission hardcopies for the KYC process. 

In order to purchase SGB online, an individual can purchase it through the internet banking service of any bank or in the stock exchange. Almost all banks offer an online SGB purchase facility on their internet banking portal. 

Banks: During the tranche, an individual can purchase it during banking/ market hours. In the case of buying through Banks, a one-time registration is mandatory. Registration is also available in the internet banking portal. Registration is a one-time process. After the successful registration, one can buy the gold bond. 

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Stock Exchange: The Sovereign Gold Bond is also available to purchase from stockbrokers like Zerodha, Upstock,  etc.  Registration does not require purchasing bonds through stockbrokers.

The Sovereign Gold Bond is also available to purchase at any time in a stock exchange or in the secondary market.

• Buying and Selling SGB through BSE

The Bombay Stock Exchange of India (BSE) is the first and largest securities market in India as Native Share and Stock Brokers' Association. Some steps for buying and selling of SGB:

1. Go to: https://ibbs.bseindia.com/
2. Next, fill up Membership id / Bank id, User name, and Password and click on Log in.
3. On the dashboard, choose the SGB option.
4. Then, fill up all details of the form.
5. And next click on Submit to place the buy order.

Sovereign Gold Bond Series 2020-2021 Chart

Sovereign Gold Bond Series FY 2021-2022 Chart

Core benefits of Sovereign Gold Bond (SGB)

Secure and safe investment: SGB issued by the Government of India with Sovereign security assurance. The digital bond removes the possibility of loss or steal of gold. Due to its digital form, no bank locker is required that can reduce the additional expenses for a long time. 

The Purity of Gold: The bond issue price will be 99.9% (24 Carat) of pure gold based on the average closing price in Indian Rupees.

GST Free Purchase: The investment in Sovereign Gold Bond is free from GST (Goods and Service Tax).

Regular income from Gold: The Sovereign Gold Bond offers 2.5% of simple interest on purchase value per annum. The interest is paid on a half-yearly basis.

Gold without additional charges: An individual only pays the gold price in SGB. There are no such additional charges like storage charge, making-charge.

Premature Redemption: The SGB comes with 8 years of tenure. However, after 5 years the units can be sold on the stock exchange. 

Discount for online purchase: If an individual purchases gold in online mode, he/ she will get a discount of 50 rupees per unit on the purchase price.

Nomination: The nomination facility is available under the Sovereign Gold Bond scheme. One or two-person can be added as nominees with separate unit allocation.

RBI Issued Certificate: On investment, the investor gets a bond as a certificate. Offline investors get physical bond certificates and online investors get a softcopy of a certificate issued by RBI. There will be no fear of stealing gold because it's the paper format.

Also, read: Invest in PPF - 8 reasons you should know about

Some drawbacks of Sovereign Gold Bond (SGB)

Interest Rate: The Interest from SGB is one of the key selling features of this bond. It seems may the rate of interest is a little less.

Tenure: Many investors may think that tenure is too long for this type of investment.

Capital loss: The value of bonds linked to the gold value depending on the international market that may cause a capital loss. But the amount of gold remains fixed.

Limit: An individual can buy a maximum of 4 kg of gold as a bond.

Tax: Have to pay tax on the received interest that paid two times per year.  Selling the bond before completion of 5 years STCG (Short Term Capital Gain) or LTCG (Long Term Capital Gain) TAX is applicable. 

Stability: The rate of gold is not stable.

A short comparison of Sovereign Gold Bond (SGB) vs. Physical Gold

Also read: How to Buy Sovereign Gold Bonds Online

FAQs

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Is SGB allows joint bond holding?

Yes, the joint holders in Sovereign Gold Bond are allowed.

Can a minor invest in SGB?

Yes, a legal guardian can purchase SGB for minors.

Can I sell the SGB before the tenure?

Yes, you can sell SGB in the stock exchange during the market session or redeem prematurely but after the completion of five years from the date of purchase. The subscriber needs to intimate the bank (or any institution) one month prior to the date of redemption regarding the maturity of the bond.

Can I convert SGB to Physical Gold?

No, that is not possible. By investing in SGB you will not have any physical gold at all. After the tenure, you will receive the ongoing market value of gold at that time.

Is there any income tax deduction on investment over the Sovereign Gold Bond?

No, there no such deductions in income tax for this scheme.

What is the GST rate on Sovereign Gold Bond?

GST on the purchase of SGB is exempted

Can I trade Sovereign Gold Bond bonds?

Yes, you can trade the bonds in stock exchanges if the bond is dematerialized (Demat).

Can I purchase 4 Kg gold of SGB every year?

Yes, you can purchase 4 kg of gold every financial year between April to March.

Can I get the bonds in Demat form?

Yes, you can get the bonds in Demat form. But an application with the Demat account details form needs to be submitted at the time of registration.

Can I transfer SGB?

Yes. The transfer facility is available under Sovereign Gold Bond.

Need a Demat account to buy Sovereign Gold Bonds?

No. a Demat account is optional.

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