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Sovereign Gold Bond (SGB) Scheme


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"Always invest in gold", our elders have taught us. It pays off well, they said, and they are right.
In India, people have traditionally invested in gold, especially since many cultures consider this yellow metal precious. So if you are planning to invest in it, "Go right ahead", we say!

In fact, why buy chunky jewellery and worry about safekeeping when you can invest in a sovereign gold bond (SGB)? It’s less risky, it’s convenient, and you don’t have to worry about storage.

 Sovereign Gold Bond

The sovereign gold bond scheme is a Government of India undertaking that allows you to purchase gold on paper. In simple terms, this scheme is a substitute for holding physical gold, says the Reserve Bank of India. So, you will be purchasing gold in kilograms but not holding on to the metal physically. Investors have to pay for the purchase in cash, and the bonds will be redeemed in cash upon maturity.

Sovereign gold bonds have given an alternative to investors who want to invest in gold but don't want the hassle associated with the physical gold purchase, especially the millennial investors.

The government introduced gold bonds in 2015 to curb gold imports in the Indian market. Since 2015, RBI has released several tranches of gold bonds in the market.

Benefits of sovereign gold bond

So why should you buy an SGB instead of buying actual gold?

  1. No storage risks and costs: If you purchase gold jewellery, you end up worrying about its safekeeping. You may even have to pay for storage in a bank locker. With this type of bond, the risks and costs of storage are eliminated.
  2. Low risk: The RBI issues these bonds on behalf of the government. Which also means that the Central government backs the scheme. That makes these bonds safer than purchasing actual gold.
  3. Payment in market price: When you withdraw your bond, either upon maturity or prematurely, you get the current market price. Investors are assured of the market value of gold at the time of maturity and periodical interest, says the RBI.
  4. No making charges: When you buy gold jewellery, you pay making charges that you may not be able to redeem upon resale. But with SGB, you need not worry about the making charges or the purity of the gold.
  5. No tax on capital gains: The government of India has exempted the tax on capital gains for purchase of gold if you invest in a sovereign gold bond. Interests earned, however, will be taxable.
  6. Indexation Benefits: If you try to transfer (exit) the bond before maturity, you can use indexation to lower the capital gain tax burden.
  7. Collateral: The paper gold bonds can double as collateral. You can use sovereign gold bonds as collateral to receive loans from banks like you take out a gold loan.

Features of sovereign gold bonds

There are some features unique to the sovereign gold scheme, as prescribed by the RBI.

  1. Denomination: SGB bonds can be purchased in grams or kilograms of gold only. You have to buy at least one gram of gold to avail of this scheme. There are also restrictions to the upper limit. One can hold a maximum SGB worth 4kg only. If it’s a trust, it can hold 20 kg worth.
  2. Interest rate: Interest will be paid to you twice a year on the amount of your initial investment and the RBI determines this rate.
  3. Eligibility: Only Indian nationals and Hindu Unified Families (HUF) can participate in sovereign gold bond schemes.
  4. Tenure: Usually, this bond matures at eight years. You will have an option to withdraw prematurely after the fifth year.
  5. Redemption: Upon maturity, the sovereign gold bonds will be redeemed and given to you in cash. The price of redemption shall be based on the simple average of the closing price of gold of 999 purity of previous three business days from the date of repayment, published by the India Bullion and Jewelers Association Limited, the RBI says.
Gold Bond Is A Great Option For Low-Risk Appetite Investors
Investors looking for a fixed return on their investment shall find sovereign gold bond a great alternative. These bonds are backed by the government, and hence, no chance of default, which makes them attractive to retirement planners and senior citizen investors. Additionally, it gives you a fixed income of interest semi-annually.

Other Ways To Invest In Gold
Sovereign gold bond is not the only alternative to invest in gold. Gold-backed ETFs are also great to get exposure to the yellow metal, especially if you want to add liquid assets to your portfolio. Let's look at a comparison between investing in physical gold, gold bonds, and ETFs.
Parameters  Gold Metal ETFs Gold Bonds
Returns Has retail value but doesn't generate any return for the investor Return is usually less than actual gold More than actual return on gold 
Purity  The purity of physical gold remains questionable, especially if it is in jewellery form  Electronic form of gold and hence, high purity assured The gold is of .999 purity and backed by the government
Safety Safety remains a concern; needs high protection from theft and wear/tear   You don't have to hold the physical gold. Hence, no concern over safety The electronic form of gold is absolutely safe
As collateral Accepted as collateral for gold loan Don't qualify as collateral  Accepted as collateral. Banks treat it as a gold loan after deciding the Loan to Value ratio
Liquidity  Moderately liquid  Highly liquid and tradable like stocks in the market Liquidity remains a concern for sovereign gold bonds. Tradable after the fifth year during the special exit window. In the secondary market, sold at a discount rate because of the fewer number of buyers  
Tenure  There is no tenure. You can hold it as long as you want, but daily wear/tear causes marginal loss in value  No fixed tenure. ETFs are traded in the exchange like stocks and indices  Gold bonds mature in eight years
Tax Implications Capital gain tax levies when you sell gold jewellery, coins, or bars LTCG applies after three years Gold bonds are exempted from capital gain tax if redeemed on maturity after eight years. LTCG applies only on the interest-earning

How Do SGBs Work?

SGBs are like holding the purest form of gold in papers/certificates. As defined in the Foreign Exchange Management Act, 1999, a person resident in India, including HUFs, trusts, charitable institutions, and universities, is eligible for investing in SGBs.

  • The RBI issues SGBs in multiple tranches during a financial year. So, even if you miss one, you can always apply when the next series is announced.
  • The price depends on the gold price in the market, calculated based on the simple average of the closing price of .999 purity gold for three consecutive days.
  • These certificates are available through post offices, brokers, banks, and also online. Investors applying digitally will get a Rs 50 discount on the bond's price.
  • These bonds are available in physical, digital, and dematerialised formats. Investors can also dematerialise the physical certificates after buying.
  • Investors can also buy these bonds in the secondary market if not buying directly from the RBI. However, the price of the bonds in the secondary market is directly dependent on availability and demand.
  • Gold bonds carry the government of India's assurance of repayment. Hence, these are considered the safest form of investment. However, they have the risk of capital loss due to changes in gold prices in the market.
  • Individual investors and HUF members can hold a maximum of 4 kg gold in SGB. Trusts, universities, and charitable trusts can own up to 20 kg.
  • The maturity period is eight years. But investors can also redeem after five years of investment during a pre-decided redemption window.
  • Conclusion :

    Sovereign gold bonds scheme is a new-age investment, allowing you to invest in gold without incurring market risk. It is suitable for long-term investment purposes.
    So if you are planning to invest in gold this festive season, we advise you to go for the sovereign gold bond scheme. It is safe, hassle-free and gives you more benefits. You can also gift this bond to your friends and family, as long as they satisfy the eligibility criteria. You can even invest in an SGB on behalf of your child, so your child can reap the benefits.

    Sovereign Gold Bonds (SGB) - Frequently Asked Questions

    Gold is a very popular form of investment especially in India. However, storing gold in its physical form makes it vulnerable to theft and loss due to calamities. Many Indian investors – as a result – like the idea of SGBs or sovereign gold bonds. In this blog, we are going to cover all the most frequently asked questions related to SGBs.

    What are sovereign gold bonds?

    Sovereign gold bonds eliminate the hassle of having to store gold physically. SGBs are government bonds that are expressed (more correctly termed as denominated) in grams of gold. An investor will typically buy x grams of gold and receive an SGB for the same. When he wants to redeem the gold, the investor turns in his or her SGB and receives the value in rupees.

    Are SGBs risk-free?

    SGBs are low-risk given that they are issued by the government. Bonds are in general seen as one of the more low-risk investments, at least as compared to equity and more so with government bonds because the government is less likely to default on settling its debts as compared to any other entity. However, you cannot say that SGB investment (or investing in physical gold for that matter) is risk-free. Although it is not seen often, the price of gold could decline – in such a case, the value of one’s investment might fall.

    Can the gold I have purchased via the SGB get lost due to market fluctuations?

    No, the units of gold purchased remain the same throughout. If you have bought 100 grams of gold, upon maturity you will receive the value for 100 grams of gold – it is only the price of the gold that fluctuates.

    Is safety the only benefit of investing in SGBs rather than physical gold? What are the other benefits?

    In addition to a safe and secure way of investing in gold, SGBs also lower your cost of investment. The investor need not shell out additionally in order to pay for “making charges” and also, there can be no questions asked about purity of the gold at a later stage. The third benefit of investing in SGBs is that there is complete transparency about the value of gold on the day of redemption. You will receive an amount that reflects the current value of gold in the market. Additionally, the RBI maintains a record of all SGBs issued so even in case of any loss of the SGB document there are ways to track down one’s investment. There’s more! The investor also gets 2.5% interest per year on the initial investment (simple interest in play here folks, not compound interest – but interest is earnings!). Besides, the interest is credited twice a year. There’s still more! Your SGB can often be accepted by banks and non-banking financial institutions as collateral for any loans that you might need to apply for. Additionally, you are diversifying your investment portfolio and thereby playing a safer investment strategy when you add SGBs to your portfolio.

    Is interest compulsory/guaranteed and how can I claim it?

    Yes, 2.5% interest is paid twice a year and investors receive the amount in their bank accounts.

    Can anyone, anywhere in the world invest in SGBs?

    Since they are issued by the Indian government, SGBs are intended for Indian residents and more specifically India individuals. Hindu Undivided Families, trusts, charities and universities may also invest.

    Where can I buy SGBs?

    SGBs can be purchased within minutes via your Angel One account. In case you don’t already have one, get together just a handful of easy documents and you can sign up completely virtually within about an hour, if not less – verification process and all. The Angel One app is free of cost and can be obtained on the Play Store or Apple app store.

    What documents/KYC does one need to submit to purchase an SGB?

    The investor needs to supply his or her PAN number to purchase an SGB. Bank account details are also furnished at this stage for you to receive your interest and redemption amount eventually.

    How is payment to be made for a SGB?

    Investors can pay via cheques, demand drafts or any other electronic money transfer method. Cash payments up to Rs 20,000 are also accepted as per RBI norms.

    Is there any minimum investment amount or maximum investment amount?

    An individual can purchase an SGB for as little as one gram of gold or as much as 4 kg of gold within a single fiscal year. In case you want to invest further, you can do so the following year. The cap is placed per-year and more specifically, per financial year. What you buy between March one year and April the following year is taken into consideration as far as capping goes. Trusts have a higher limit of 20 kg per year.

    Is the limit also extended to my family?

    If there are multiple members in a single family holding demat accounts, each member is entitled to his or her own limit – for example, if I hold a demat account and so does my brother, both of us may go ahead and invest 4Kg in a single fiscal, if our finances and investment porfolio allow us to do so. The ceiling is restricted to the joint holder. So if Rohit and Rahul are each other’s joint holders, being brothers, they still get to each invest 4 kg in a fiscal if they want to do so.

    Can I get multiple limits for myself by using multiple IDs or bank accounts?

    This is not an option because you have only one PAN number, which has to be supplied for any SGB purchase.

    But individuals can buy 4kg every financial year and trusts can buy 20 kg of gold using SGB every year?

    Yes indeed. Individuals can buy 4kg every financial year and trusts can buy 20 kg of gold using SGB every year. The cap is per fiscal. You can hold 8kg the second year (or 40kg if you’re a trust), 12 kg the next year and 16 kg the fourth year.

    How long should I wait to redeem my SGB?

    Gold is ideally a long-term investment but there is also no guarantee on when the prices will shoot up. Ideally, SGB holders should wait until the value of gold increases substantially before redeeming their investment in order to take home good earnings. As with all investments that have fluctuating values, it is best to invest in gold when you have already sorted out your daily living and lifestyle expenses. Timing is everything. You do not want to have to redeem your investment at the wrong time when the value of gold isn’t at its shiniest best, simply because you have had an emergency and need liquid cash.

    Is there any lock-in period?

    Usually, the lock-in period for SGBs is about 8 years.

    Is there any provision for early redemption? What if I need the money?

    Investors are allowed to redeem their SGBs on specific “coupon dates” cited by the government. It is ideal to apply for early redemption about a month prior to the coupon payment dates. According to the RBI, “requests for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date.”
    Other options are
  • Selling/trading the SGB on the stock market. This has to however happen on dates
  • specified by the RBI.
  • Exercising a put option to redeem one gram at a time.
  • Transferring/ gifting the SGB to another eligible entity.
  • Are you allowed to hold SGBs jointly?

    Absolutely! You can hold SGBs with the joint holder of your trading and demat account.

    Can you put down a nominee for your SGB?

    Indeed it is advisable to specify a nominee for all your investments. Do fill up the nomination field or nomination details while applying for your SGB.

    What if my nominee is an NRI?

    The government has made provisions for such situations: You may indeed nominate an NRI (individual) for your SGB. However, the nominee NRI must hold the SGB until maturity – no early redemption is available in this case. Additionally, the interest and redemption amount will not be repatriated (it will not be sent to the NRI’s country of residence).

    What is the process for redemption?

    Step 1 – Submit PAN card, trading/demat account details and payment for SGB purchase on the Angel One website or mobile app
    Step 2 – Obtain and check your holding certificate
    Step 3 – Save your holding certificate
    Step 4 – keep an eye on gold prices
    Step 5 – when the price rises substantially after a few years, go ahead and redeem your investment upon maturity.

    Where will I receive my redemption amount?

    The amount is transferred to your bank account as per the bank account details supplied when you purchased your SGB.

    What if I have closed my account or want to transfer the amount to another bank account?

    If this is the case, you must intimate Angel One at least 30 days prior to redemption.

    Can I invest in gold for my children?

    Yes, you can go ahead and invest in gold for your children – even if they are minors. The SGB will be made on their behalf by you.

    What happens in the event of death of the SGB investor?

    The process works very similarly to any other investments. There are several possible options depending on the unique situation at hand:
    If the SGB holder has nominees signed up, they may approach Angel One with their claim
    Administrators or executors of the SGB holder may put forth a claim
    Successors may approach with succession certificate
    Joint holder may go ahead and claim
    (The process is the same also for a minor investor.)

    Is it better to apply online or apply in person?

    Online is certainly more convenient to investors, especially amidst the ongoing pandemic. Moreover, you might be entitled to a Rs 50 discount according to the RBI when you purchase the SGB online and pay online. Clearly the government is encouraging investors to use the online mode.

    Can I buy SGB anytime, or are there specific periods – like NFO and IPO? And how can I find out the price?

    The government holds an SGB issue every month.

    How can I find out the price of gold?

    The prices are published on the RBI website two days prior to the issue. Additionally, the nominal value of gold bonds is fixed as per the of simple average of closing price of gold of 999 purity, as published by the India Bullion and Jewelers Association Limited during the last three business days of the week just prior to the subscription dates.

    Does everyone who applies for an SGB get it or are there some selection criteria? If too many people apply is it possible that some will not receive the allotment?

    Provided you meet eligibility criteria, submit your application and the capital for the allotment on time and supply valid documentation, there is no reason for any investor to be denied allotment.

    Can I use SGBs for gifting?

    Absolutely, you can gift or transfer an SGB to a friend or relative in accordance with the law and prior to maturity of the SGB.

    Can I use SGBs for trading?

    Yes indeed, you can trade SGBs on the stock market on dates specified by the RBI.

    Can I get at least partial repayment of SGBs when I exercise a put option?

    Yes you can go ahead and redeem your SGB holding one gram at a time.

    What is the taxation applicable on SGBs?

    According to the RBI, “Interest on the Bonds will be taxable as per the provisions of the Income-tax Act. The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.” Currently SGBs are exempt from TDS on interest. SGBs can be a good investment model if you purchase at the right time and the right price and have an investment term that can help you redeem your investment at a much better rate. It also helps investors to diversify their portfolio – which corresponds to lower risk. Always remember, everyone can invest irrespective of age, occupation or gender. All you need to do is save diligently, research carefully (as you are doing now) and practice safe investing. Kick-start your investment journey with Angel One.

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