How to Buy Sovereign Gold Bonds

19 April 2024
9 min read
How to Buy Sovereign Gold Bonds
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Investing in gold has always been a popular choice for individuals looking to diversify their portfolios and protect their wealth.

In recent years, a new investment avenue has emerged for gold enthusiasts: Sovereign Gold Bonds (SGBs). These government-backed securities offer a unique opportunity to conveniently and securely own gold.

If you're curious about how to buy Sovereign Gold Bonds and want to capitalize on the benefits they offer, you've come to the right place.

How Do SGBs Work?

To understand the process to buy RBI gold bonds online, it is necessary you learn how Sovereign Gold Bonds work-

  • As one SGB is equivalent to 1 gram of gold, SGBs are denominated in one grams units of gold or multiples thereof. Therefore, you can only buy whole units of SGBs.

  • These instruments have an eight-year maturity period. This can be extended by a period of three years. If purchased directly from the government via the primary market, these can be sold directly back to the government from the fifth year onwards.

    If held in the demat form, they can be sold at any time on the stock exchange.

  • The value of the SGB will be determined based on the average closing price of 999 purity gold in the last three business days of the week before the subscription period, as published by the India Bullion and Jewelers Association Limited.

  • They bear a fixed interest rate of 2.50% per annum on the initial investment amount credited semi-annually to the investor’s bank account.

  • The last interest is payable on maturity alongside the principal.

  • Issuers buying the SGB online pay Rs.50 lesser than the nominal value.

  • The interest on SGBs is taxable. The capital gains on maturity are not taxable; however, it is taxable if sold before maturity. Short-term gains are taxed per the tax bracket, and long-term gains are taxed as per the indexation benefit.
  • TDS does not apply to these bonds, but this does not mean that these are tax-free instruments.

  • SGBs are issued in ‘tranches’ in every financial year. Tranches refer to a specific period during which a portion of bonds is made available for investors to subscribe to.

    For example, there were four tranches during which SGBs were issued in 2023-2024:

S.No.

Tranche

Date of Subscription

Date of Issuance

1.

2023-24 Series I

June 19 - June 23, 2023

June 27, 2023

2.

2023-24 Series II

September 11-September 15, 2023

September 20, 2023

How to Buy Sovereign Gold Bonds Online? 

SGBs can be purchased from the secondary market anytime from the BSE or NSE. Online purchase of these bonds allows the entity to purchase them for a price of Rs.50 less than the nominal price.

- How to Buy SGB Online (Primary Issuance)

Scheduled commercial banks offer the primary issuance of SGBs. Individuals can follow these steps to learn how to buy gold bonds online in India-

Step 1: Log in to your net banking account.

Step 2: Choose the ‘eServices’ option and select ‘Sovereign Gold Bond’.

Step 3: Read the terms and conditions and select the option ‘Proceed’.

Step 4: Fill out the registration form and click ‘Submit’.

Step 5: Enter the subscription quantity in the purchase form alongside the nominee’s details.

Step 6: After furnishing these details, select ‘Submit’.

Who is Eligible to Invest in a Sovereign Gold Bond Scheme?

Now that you know how to invest in SGB, let's understand who can invest in SGBs.

The Reserve Bank of India allows the following entities to buy sovereign gold bonds:

  • Resident Individuals of India
  • A Hindu Undivided Family (HUF)
  • Individuals subscribing on a Minor’s behalf
  • Charitable Organisations, Trusts, and Universities
  • Joint Holders

The RBI does NOT allow the following entities to buy sovereign gold bonds:

  • NRIs, OCIs, PIOs
  • Private Limited Companies
  • Firms
  • LLPs

What are the Minimum and Maximum Limits for Investing in SGBs?

When planning to buy gold bonds online in India, investors should make a minimum investment of 1 gram (source). 

The maximum limit for investing in a sovereign gold bond is as follows:

  • 4 kilograms for individual investors and Hindu Undivided Families
  • 20 kilograms for charitable organisations, trusts, and universities

The investment limit of 4 kilograms is applied only to the first holder in case of joint holding.

Is It Mandatory to Purchase Gold Bonds Online?

No, it is not mandatory to buy gold bonds online. The RBI permits these bonds to be purchased offline as well.

Investors can buy sovereign gold bonds from any of the following entities:

  • Designated post offices
  • The Stock Holding Corporation of India Limited or SHCIL
  • Recognised stock exchanges of India, viz., the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited
  • Scheduled commercial banks - 

Private Banks -

  • Karur Vysya Bank Ltd.
  • Axis Bank Ltd.
  • IndusInd Bank Ltd.
  • Nainital Bank Ltd. 
  • HDFC Bank Ltd.
  • Tamilnad Mercantile Bank Ltd.
  • Development Credit Bank Ltd.
  • IDBI Bank Ltd.
  • City Union Bank Ltd.
  • IDFC Bank Ltd. 
  • Ratnakar Bank Ltd.
  • Federal Bank Ltd.
  • Jammu & Kashmir Bank Ltd. 
  • Dhanlaxmi Bank Ltd.
  • South Indian Bank Ltd. 
  • Development Credit Bank Ltd
  • Bandhan Bank 
  • ICICI Bank Ltd.
  • Karnataka Bank Ltd.
  • Kotak Mahindra Bank Ltd.
  • Yes Bank Ltd. 
  • Lakshmi Vilas Bank Ltd.
  • Catholic Syrian Bank Ltd.

Public Banks

  • State Bank of India 
  • Bank of Maharashtra 
  • Indian Overseas Bank 
  • Bank of Baroda (including Dena Bank and Vijaya Bank)
  • Bank of India 
  • Canara Bank (including Syndicate Bank)
  • Punjab National Bank (including United Bank of India and Oriental Bank of Commerce)
  • Union Bank of India (including Corporation Bank and Andhra Bank)
  • Punjab & Sind Bank
  • UCO Bank
  • Central Bank of India 
  • Indian Bank (including Allahabad Bank)

Advantages of Buying Sovereign Gold Bonds 

There are many advantageous reasons to buy SGBs; here are some - 

  • Safety and Security

SGBs are issued by the government, providing a high level of security as no default risk is associated. Additionally, you don't need to worry about gold's physical storage and security.

  • Convenience and Accessibility

SGBs are held in Demat form, making them easy to buy, sell, and hold. Investors can also avoid the challenges associated with buying, storing, and selling physical gold.

  • Interest Income

SGBs offer a fixed interest rate on the initial investment amount, providing additional income.

  • Capital Appreciation Potential

As SGBs are linked to the price of gold, investors can gain from any rise in gold prices during the investment period.

  • Hedge Against Inflation

Gold has historically served as a hedge against inflation, preserving purchasing power.

  • Tax Benefits

No capital gains tax is levied if the investor holds the bonds until maturity. In premature redemption, indexation benefits are available to reduce tax liability.

▶️ You may also want to know Tax Implications to Buy Sovereign Gold Bonds (SGBs)

  • Liquidity and Tradability

SGBs can be bought and sold on the stock exchanges, offering liquidity to investors. Unlike physical gold, SGBs don't incur making charges, and their value isn't affected by wear and tear.

Risks Involved with Buying SGBs

Although these bonds are relatively low-risk compared to other forms of gold investment, that doesn't mean there are no risks involved with their purchase.

Some of these include -

  • Fluctuations in Gold Prices

The value of SGBs is directly linked to the price of gold, which can experience significant fluctuations in the market.

If the price of gold declines during the investment period, it can lead to a decrease in the value of SGBs.

  • Interest Rate Risk

SGBs have a fixed interest rate, so if interest rates rise significantly in the future, the opportunity cost of holding SGBs may increase.

Higher interest rates in the economy can make alternative investments more attractive, potentially impacting the relative returns of SGBs.

  • Early Exit Constraints

Selling SGBs before maturity may result in limited liquidity, as the secondary market trading volume can be lower than other financial instruments.

If an investor decides to redeem SGBs before maturity, the prevailing market price of gold may lead to potential losses.

  • Regulatory Changes

The government may introduce new regulations or alter existing ones related to SGBs, which can impact the terms, benefits, and taxation aspects of the bonds.

The frequency and availability of SGB tranches may vary based on government decisions, potentially affecting investment opportunities.

Takeaway

Here, we have summed up how to invest in gold bonds. Note, Sovereign Gold Bonds (SGBs) offer a convenient and secure way to invest in gold with various benefits, including safety, interest income, capital appreciation, tax advantages, and liquidity. However, you must know the associated risks like price fluctuations, interest rate risks, limited liquidity, and regulatory changes.

SGBs are well-suited for long-term investors seeking stability and a hedge against underperforming assets. One should assess risk tolerance and financial goals to consider SGBs as part of your diversified portfolio confidently.

You May Also Be Interested to Know

1.

Best Ways to Invest in Gold

2.

Top 10 Reasons to Invest in Gold

3.

Best Gold Stocks to Invest in India

4.

Why Should You Consider Buying Digital Gold?

5.

Best Gold Mutual Funds to Invest in India

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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