Investing in gold has never been more straightforward and accessible, thanks to Sovereign Gold Bonds (SGBs). These bonds present an ideal option for those looking to invest in gold without dealing with the physical asset. SGBs offer both capital appreciation and annual interest, making them an attractive investment choice. Issued by the Government of India, they also minimize the various risks associated with owning physical gold.
The Sovereign Gold Bond Scheme was introduced by the government in November 2015 as part of the Gold Monetisation Scheme. The Reserve Bank of India (RBI), in consultation with the Government of India, opens subscriptions to these bonds in tranches. The RBI also periodically announces the terms and conditions of the scheme. The subscription calendar for SGBs is published, and the bond rate for each new tranche is declared by the RBI through a press release.
According to the RBI guidelines, every application for SGBs must include the Permanent Account Number (PAN) issued by the Income Tax Department to the investor(s). The PAN of the first or sole applicant is mandatory for the investment.
Sovereign Gold Bonds offer numerous advantages over physically holding gold. Investors’ gold purchases are safeguarded, as they receive the prevailing market price at the time of redemption or premature redemption. Additionally, the risks and costs associated with storage are eliminated.
Investors are guaranteed the market value of gold at the time of maturity, along with periodic interest payments. Moreover, SGBs do not have issues like making charges and purity concerns, which are common with gold jewellery. The bonds are maintained in the RBI’s records or in a dematerialized (Demat) form, thus eliminating the risk of losing physical certificates.
Sovereign Gold Bond: Benefits and Features
Hassle-free Ownership
Sovereign Gold Bonds (SGBs) offer a hassle-free way of owning gold without physically possessing it. This eliminates the risks and costs associated with storing physical gold.
Tax Treatment
SGBs provide a tax exemption on capital gains arising from their redemption for individual investors. Additionally, indexation benefits apply to long-term capital gains for any person transferring the bond.
Tradable and Transferable
SGBs are tradable on stock exchanges within a fortnight of issuance, as notified by the Reserve Bank of India (RBI). They are also transferable by executing an Instrument of transfer, in accordance with the Government Securities Act.
Issuance and Denomination
RBI issues SGBs on behalf of the Government of India. These bonds are denominated in multiples of grams of gold, with a basic unit of 1 gram.
Tenure and Exit Options
SGBs have a tenure of 8 years, with exit options available in the 5th, 6th, and 7th years, which can be exercised on interest payment dates.
Investment Limits
The minimum permissible investment in SGBs is 1 gram of gold. The maximum subscription limit for individuals and HUFs is 4 KG, while trusts and similar entities can subscribe up to 20 KG per fiscal year (April-March).
Pricing and Payment
RBI announces the issue price of the bonds before each new issue. The price is fixed in Indian Rupees, based on the simple average of the closing price of gold with 999 purity, as published by the India Bullion and Jewellers Association Limited (IBJA) for the last 3 business days of the week preceding the subscription period. Payment for the bonds can be made through cash (up to Rs. 20,000), demand draft, cheque, or electronic banking.
Holding Certificate and Dematerialization
Investors receive a holding certificate for SGBs, which are issued as Government of India Stocks under the Government Security Act, 2006. These bonds are eligible for conversion into dematerialized form.
Redemption Price
The redemption price for SGBs is determined in Indian Rupees, based on the simple average of the closing price of gold with 999 purity for the previous 3 working days, as published by IBJA.
All branches of the State Bank of India are authorized to accept subscriptions for SGBs.
Fixed Interest Rate
SGBs offer a fixed interest rate of 2.50% per annum, payable semi-annually on the nominal value.
Collateral for Loans
SGBs can be used as collateral for loans, with the loan-to-value (LTV) ratio set equal to the ordinary gold loan mandated by RBI from time to time. Authorized banks can mark a lien on the bond in the depository.
Note: The decision to grant a loan against SGBs is at the discretion of the bank/financing agency and cannot be assumed as a matter of right.
Trading on Stock Exchanges
SGBs become tradable on stock exchanges within a fortnight of their issuance, as notified by RBI.
Eligibility for Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are restricted for sale to resident Indian entities. The eligible entities include:
- Resident Individuals (in their capacity as individuals, on behalf of a minor child, or jointly with any other individual)
- Hindu Undivided Families (HUFs)
- Trusts
- Universities
- Charitable Institutions
Requirements for Applying
To apply for SGBs, the following requirements must be met:
- Residency Status: The applicant must be a resident individual, applying on their own behalf, on behalf of a minor, or jointly with another individual, or an eligible entity such as a HUF, Trust, University, or Charitable Institution.
- PAN Number: A mandatory PAN (Permanent Account Number) issued by the Income Tax Department is required.
- KYC Compliance: The Know-your-customer (KYC) norms for purchasing SGBs are the same as those for purchasing physical gold. Necessary KYC documents include Voter ID, Aadhaar card, PAN or TAN, and Passport.
Tax Implications
The interest earned on SGBs is taxable under the provisions of the Income Tax Act, 1961 (43 of 1961). However, the capital gains tax arising from the redemption of SGBs for individuals is exempted. Additionally, indexation benefits apply to long-term capital gains arising from the transfer of bonds for any person.
Sovereign Gold Bonds Scheme 2022-23 Series III & IV Calendar of Issuance
| No | Tranche | Date of Subscription | Date of Issuance |
|---|---|---|---|
| 1. | 2022-23 Series III | December 19- December 23, 2022 | December 27, 2022 |
| 2. | 2022-23 Series IV | March 06 –March 10, 2023 | March 14, 2023 |
Sovereign Gold Bond (SGB) Scheme Calendar for premature redemption during October 2022 – March 2023
| SGB Series | Issue Date | Date of coupon payment | Dates for submitting the request for premature redemption by the investors to the Receiving Offices/NSDL/CDSL/RBI Retail Direct | |
|---|---|---|---|---|
| From | To | |||
| 2015-I | November 30, 2015 | November 30, 2022 | October 31, 2022 | November 21, 2022 |
| 2016-I | February 8, 2016 | February 8, 2023 | January 9, 2023 | January 30, 2023 |
| 2016-II | March 29, 2016 | March 29, 2023 | March 1, 2023 | March 20, 2023 |
| 2016-17 Series I | August 5, 2016 | February 5, 2023 | January 5, 2023 | January 25, 2023 |
| 2016-17 Series II | September 30, 2016 | March 30, 2023 | March 1, 2023 | March 20, 2023 |
| 2016-17 Series III | November 17, 2016 | November 17, 2022 | October 17, 2022 | November 7, 2022 |
| 2016-17 Series IV | March 17, 2017 | March 17, 2023 | February 17, 2023 | March 7, 2023 |
| 2017-18 Series I | May 12, 2017 | November 12, 2022 | October 12, 2022 | November 2, 2022 |
| 2017-18 Series II | July 28, 2017 | January 28, 2023 | December 28, 2022 | January 18, 2023 |
| 2017-18 Series III | October 16, 2017 | October 16, 2022 | September 16, 2022 | October 6, 2022 |
| 2017-18 Series IV | October 23, 2017 | October 23, 2022 | September 23, 2022 | October 13, 2022 |
| 2017-18 Series V | October 30, 2017 | October 30, 2022 | September 30, 2022 | October 19, 2022 |
| 2017-18 Series VI | November 6, 2017 | November 6, 2022 | October 6, 2022 | October 27, 2022 |
| 2017-18 Series VII | November 13, 2017 | November 13, 2022 | October 13, 2022 | November 3, 2022 |
| 2017-18 Series VIII | November 20, 2017 | November 20, 2022 | October 20, 2022 | November 10, 2022 |
| 2017-18 Series IX | November 27, 2017 | November 27, 2022 | October 27, 2022 | November 17, 2022 |
| 2017-18 Series X | December 4, 2017 | December 4, 2022 | November 4, 2022 | November 24, 2022 |
| 2017-18 Series XI | December 11, 2017 | December 11, 2022 | November 11, 2022 | December 1, 2022 |
| 2017-18 Series XII | December 18, 2017 | December 18, 2022 | November 18, 2022 | December 8, 2022 |
| 2017-18 Series XIII | December 26, 2017 | December 26, 2022 | November 28, 2022 | December 16, 2022 |
| 2017-18 Series XIV | January 1, 2018 | January 1, 2023 | December 1, 2022 | December 21, 2022 |
Note: The dates mentioned above may change in case of unscheduled holidays. Investors are advised to take note of the period for submitting requests for redemption of SGB if they choose to redeem their holdings before maturity.
Frequently Asked Questions
What is a Sovereign Gold Bond (SGB)? Who is the issuer?
A Sovereign Gold Bond (SGB) is a government security denominated in gold grams, issued by the Government of India (GOI).
Are there risks in investing in SGBs?
No, there are no risks in investing in SGBs.
Who can invest in SGBs?
Resident Indians, including individuals, HUFs, trusts, universities, and charitable institutions, can invest in SGBs.
Is joint holding allowed for SGBs?
Yes, joint holding is allowed for SGBs.
Can minors invest in SGBs?
Yes, minors can invest in SGBs through their guardians.
What is the tenor of an SGB?
The tenor of an SGB is 8 years, with an exit option after the 5th, 6th, and 7th years.
Is there a lock-in period for SGB investments?
Yes, there is a lock-in period of 5 years for SGB investments.
How is the SGB redemption price determined?
The redemption price is based on the average closing gold price for 0.999 purity published by the Indian Bullion and Jewellers Association (IBJA).
What is the interest rate on SGBs?
The interest rate on SGBs is 2.50% p.a., paid semi-annually (fixed rate).
Can non-resident Indians (NRIs) invest in SGBs?
No, NRIs cannot invest in SGBs.
Can one apply for SGBs online?
Yes, you can apply online through the websites of listed scheduled commercial banks.
What are the tax implications on interest and capital gains for SGBs?
Interest is taxable under the Income-tax Act, 1961. Capital gains tax on SGB redemptions is exempt for individuals on maturity.
Can SGBs be held in demat form?
Yes, SGBs can be held in demat form upon request during the application or after allotment.
Is tax deducted at source (TDS) applicable on SGBs?
TDS is not applicable on SGBs, but bondholders must comply with tax laws.
Can one trade SGBs?
Yes, SGBs are tradable on stock exchanges and can be sold or transferred as per the Government Securities Act provisions.
How will redemption proceeds and interest be paid?
Both will be credited to the bank account number provided in the application form.
When will the holding certificate be issued?
The holding certificate is issued on the SGB issuance date and can be collected from branches or sent to the investor’s email ID if provided in the application form.
What will I get on SGB redemption?
On maturity, you will receive the prevailing market value of the originally invested gold grams in Indian Rupees, based on the average closing price of gold of 999 purity from the previous 3 business days.
At what price are SGBs sold?
The price is fixed based on the simple average closing price of gold of 999 purity published by the India Bullion and Jewelers Association Limited for the last three business days of the week preceding the subscription period. There is a ₹50 per gram discount for investors applying online and paying digitally.
What is the interest payment frequency for SGBs?
Interest on SGBs is paid semi-annually, and the last interest payment is made on maturity along with the principal.
Are there any risks in investing in SGBs?
There is a risk of capital loss if the market price of gold declines, but the investor will not lose in terms of gold units paid for.
Can I buy 4 kg worth of SGBs every year?
Yes, individuals can buy up to 4 kg worth of SGBs every fiscal year.
Can a minor invest in SGBs?
Yes, minors can invest in SGBs through their guardians.
Can I buy 4 kg of SGBs in the name of each family member?
Yes, each family member can hold SGBs if they meet the eligibility criteria.
Is the 4 kg maximum limit applicable in case of joint holding?
The 4 kg maximum limit applies to the first applicant in a joint holding for a specific application.
Why should I buy SGBs instead of physical gold?
SGBs offer a superior alternative to physical gold, eliminating risks and costs of storage and providing market value, interest, and purity assurance.
What is the minimum and maximum limit for SGB investments?
SGBs are issued in denominations of one gram of gold and multiples thereof. The minimum investment is one gram, and the maximum limit is 4 kg for individuals/HUFs and 20 kg for trusts and similar entities per fiscal year.