Best Gold Investment Option | All about Sovereign Gold Bond

Build fully tax free wealth by investing in Sovereign Gold Bond (SGB), backed & offered by Reserve Bank of India

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Your introduction to the Sovereign Gold Bond

Sovereign Gold Bonds: These bonds are periodically released by the Reserve Bank of India (RBI) and available for purchase through leading public and private sector banks. While these bonds are guaranteed by the Government of India and pegged to the price of gold, they actually do not have physical gold as an underlying asset. The sovereign default risk applicable to Sovereign Gold Bonds is due to the fact that this instrument is not backed by physical gold and is instead a derivative of Gold issued by the Government of India through the Reserve Bank of India (RBI). In this case, the Government uses the price of gold as a benchmark and issues the bonds that guarantee periodic interest payments (at 2.5% p.a.) along with the return of principal to the investors at maturity. A sovereign default in this case refers to a situation where the Government of India is no longer able to make scheduled repayments on its outstanding debt. This situation can typically occur when a country’s debt levels are very high and there is a simultaneous economic downturn in the country. But at the moment, there is very little chance of this happening in India. One, you can do premature encashment of bonds after 5 years i.e. after completion of the lock-in period for these bonds. In case you want to redeem your investment before the completion of this 5 year period, you have the option of listing and selling your Sovereign Gold Bond on the secondary market i.e. stock market. This can be done at any time after the completion of 6 months from the date of issue. However, typically this secondary market features low volumes, so you might have to sell your bonds at a discount as compared to the market price of Gold. In case you are looking for an option to monetize your investment that does not involve selling or premature encashment, you can opt for a loan against your bonds. For example, the State Bank of India offers loans against Sovereign Gold Bonds for amounts of up to 35% of the value of the bonds used as collateral. The final factor that we need to consider in our evaluation is the taxation of gold investment options and we will discuss this next.

Expenses of holding Sovereign Gold Bond

Unlike other Gold Investment Options which carriers expenses like GST, Demat Account Charges, Exit Load, Brokerage, Commissions or others. There is ZERO cost for holding Sovereign Gold Bonds. Means, you won't be losing money on fee like commissions, exit load or any other charges which could affect the returns in a negative way.

Liquidity of Sovereign Gold Bonds

Sovereign Gold Bonds currently have a maturity period of 8 years, however, that does not necessarily mean that the investment needs to be compulsorily held till maturity. In case you want to redeem before maturity, you have 2 options.

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How Sovereign Gold Bonds are taxed ?

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Taxation on Interest

The interest earned from Sovereign Gold Bonds (currently 2.5% p.a.) is completely taxable. It is added to your taxable income for the applicable FY and taxed according to the applicable slab rate.

Taxation on Premature Redemption

In case you prematurely encash your investment after the completion of 5 years, the gains are completely tax-free. The RBI typically offers redemption windows every 6 months after completion of the 5-year lock-in that can be utilized for completing the premature encashment.

Taxation on Maturity

In case you hold your Sovereign Gold Bonds till maturity and encash them after completion of the 8 year holding period, your gains from the investment will be tax-free.

Taxation on Stock Market Sale

In case you redeem your bonds through the secondary market, you will be taxed according to the Capital Gains taxation rules discussed earlier. Thus either STCG or LTCG tax rate will apply to your investment depending on the holding period of the bonds.

Frequently Asked Questions

Got a question? We've got answers. If you have some other questions, contact us using email.

Sovereign Gold Bonds or SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

The application form will be provided by the issuing banks/SHCIL offices/designated Post Offices/agents. It can also be downloaded from the RBI’s website. Banks may also provide online application facility.

There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.

Yes, joint holding is allowed.

Yes. The application on behalf of the minor has to be made by his/her guardian.

No. An investor can have only one unique investor Id linked to any of the prescribed identification documents. The unique investor ID is to be used for all the subsequent investments in the scheme. For holding securities in dematerialized form, quoting of PAN in the application form is mandatory.

The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions

Yes, each family member can buy the bonds in his/her own name if they satisfy the eligibility criteria as defined at Q No.4.

Yes. An investor/trust can buy 4 Kg/20 Kg worth of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.

The maximum limit will be applicable to the first applicant in case of a joint holding for that specific application.

The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents.

If the customer meets the eligibility criteria, produces a valid identification document and remits the application money on time, he/she will receive the allotment.

The customers will be issued Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI on email, if email address is provided in the application form.

Yes. A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

The nominal value of Gold Bonds shall be in Indian Rupees fixed on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.

The price of gold for the relevant tranche will be published on RBI website two days before the issue opens.

On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.

Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.

The investor will be advised one month before maturity regarding the ensuing maturity of the bond. On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record. In case there are changes in any details, such as, account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.

Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.

In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Request 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. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

The bond can be gifted/transferable to a relative/friend/anybody who fulfills the eligibility criteria (as mentioned at 4) . The Bonds shall be transferable in accordance with the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity by execution of an instrument of transfer which is available with the issuing agents.

Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Granting loan against SGBs would be subject to decision of the bank/financing agency, and cannot be inferred as a matter of right.

Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). 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.

TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.

The issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents through which these securities have been purchased will provide other customer services such as change of address, early redemption, nomination, grievance redressal, transfer applications etc.

Payment can be made through cash (upto ₹ 20000)/cheques/demand draft/electronic fund transfer.

Yes, nomination facility is available as per the provisions of the Government Securities Act 2006 and Government Securities Regulations, 2007. A nomination form is available along with Application form. An individual Non - resident Indian may get the security transferred in his name on account of his being a nominee of a deceased investor provided that: the Non-Resident investor shall need to hold the security till early redemption or till maturity; and the interest and maturity proceeds of the investment shall not be repatriable.

Yes. The bonds can be held in demat account. A specific request for the same must be made in the application form itself. Till the process of dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to demat will also be available subsequent to allotment of the bond.

The bonds are tradable from a date to be notified by RBI. (It may be noted that only bonds held in de-mat form with depositories can be traded in stock exchanges) The bonds can also be sold and transferred as per provisions of Government Securities Act, 2006. Partial transfer of bonds is also possible.

The nominee/nominees to the bond may approach the respective Receiving Office with their claim. The claim of the nominee/nominees will be recognized in terms of the provision of the Government Securities Act, 2006 read with Chapter III of Government Securities Regulation, 2007. In the absence of nomination, claim of the executors or administrators of the deceased holder or claim of the holder of the succession certificate (issued under Part X of Indian Succession Act) may be submitted to the Receiving Offices/Depository. It may be noted that the above provisions are applicable in the case of a deceased minor investor also. The title of the bond in such cases too will pass to the person fulfilling the criteria laid down in Government Securities Act, 2006 and not necessarily to the Natural Guardian.

Yes, part holdings can be redeemed in multiples of one gm.

A dedicated email has been created by the Reserve Bank of India to receive queries from members of public on Sovereign Gold Bonds. Investors can mail their queries to this email id.

Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s).

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

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