Gold is a strategic asset that has outperformed others, even in the most hostile situations. It is often bought as a portfolio diversifier to mitigate losses from other asset classes. Realising its potential, many have started investing in gold in various forms. Apart from buying it in the physical form, gold is available for investment as Sovereign Gold Bonds (SGBs). These bonds are a superior alternative to physical gold as it gives periodic interest and market value at the time of maturity. Let’s understand more about SGBs before you start considering them as an investment option.
What are SGBs?
SGBs are government securities issued by the Reserve Bank of India on behalf of the Indian government. SGBs have gold as the underlying asset and are denominated in grams of gold. The bonds carry the average closing price of the last three working days of 999-purity gold as published by the Indian Bullion and Jewellers Association. Launched by the Government of India under the Gold Monetisation Scheme in 2015, sovereign gold bonds are offered in tranches at regular intervals.
Features of SGBs:
Some of the features of Sovereign Gold Bonds are:
1. Sovereign gold bonds are traded on the stock exchange
2. SGBs carry an interest of 2.5 percent per annum, which is payable semi-annually
3. Capital gains arising from price appreciation of gold are tax exempt. However, the interest earned is taxable
4. The bonds can be used as collateral against loans.
5. The last interest is paid with the principal on maturity
6. The bonds have a tenure of 8 years. However, exit options are available from the 5th year onwards on the date of interest payment
7. An individual can subscribe to a maximum of 4 kgs of gold. A Hindu Undivided Family (HUF) can also subscribe to 4 kgs of gold, while trusts and other such entities can buy up to 20 kgs
8. The minimum investment allowed is 1 gram
9. These bonds are secure and are issued as stocks under the Government Security Act, 2006. Investors receive a holding certificate
10. The bonds are available in DEMAT and physical forms
11. On redeeming the bonds, investors will receive the average price of the metal in the three preceding days
12. Payment can be made in cash, demand draft, cheques or through the digital mode
How to buy SGBs:
SGBs are only intermittently available for purchase when the government releases it in tranches. The sale will be open for a week every month. Those who wish to buy at other times can buy earlier issues at market price. When the window for sale is open, SGBs can be purchased from the offices of nationalised banks, scheduled foreign banks, scheduled private banks, Stock Holding Corporation of India, designated post offices and through authorised trading members of stock exchanges.
Apart from the offline sources, you should be aware of how to buy SGBs online. You can download the forms online from the websites of the listed commercial banks or the Reserve Bank of India. Investors applying and paying online get a discount of Rs 50 per gram. The PAN number is mandatory for buying SGBs.
How to invest in sovereign gold bonds on the Angel One mobile app in 3 simple steps:
Step 1: Log into the app and tap on the menu
Step 2: Select Investment Opportunities, tap on Sovereign Gold Bonds, and select the open series
Step 3: Enter the quantity, check the payable amount, and tap on Invest
That’s it! Your order is placed.
In the order book you can check your tenure, lock-in period, and other details!
Log into your Demat account and invest In Sovereign Gold Bonds.
You can download a shareable version of Frequently Asked Questions about Sovereign Gold Bonds here
SGBs are purely investment instruments that allow you to gain from the price appreciation of gold. They’re in DEMAT and paper form and cannot be converted into actual physical gold for use. Therefore, it is necessary to understand their features and investment objectives.