Sovereign Gold Bonds (SGBs) are substitutes for holding physical gold. They are gold bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India. SGBs allow individuals to invest in gold without having to store it physically, which can come with some downsides and challenges. They eliminate the risks and costs of storing physical gold. The bonds are stored in the RBI’s records or in demat form, eliminating the risk of loss of scrip and other issues.
SGBs are issued in denominations of one gram of gold (and multiples thereof). The issue price is based on the prevailing price of gold and fluctuates with it. Buying a sovereign gold bond is regarded as a good investment because it is less vulnerable to market volatility. SGBs are government securities, so they carry sovereign guarantees. This makes them a very safe investment option.
Key Features of Sovereign Gold Bond (SGB)
- SGBs are government securities, so they carry a sovereign guarantee. They are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- A holding certificate is issued in the name of an investor after a successful purchase on the day of issuance.
- The minimum limit of investment in the bond is one gram, while the maximum is 4kg for individuals, 4kg for Hindu Undivided Families (HUF), and 20kg for trusts and similar entities.
- SGBs can be used as collateral when applying for loans from banks, financial institutions, and Non-Banking Financial Companies.
- The bonds can also be transferred or gifted to another individual (relative, friend, etc.), provided the individual meets the eligibility criteria.
- Gold bonds are issued for eight years with an option for premature redemption after the fifth year from the day of issuance. This means that an investor may choose to encash or withdraw his bonds after five years. Redemption proceeds will be credited to the bank account provided by the investor at the time of purchasing the bond. If held in demat form, the bond will be tradable on exchanges at the current market rate of gold. It can also be transferred to any other eligible investor.
- Sovereign gold bond offers an annual interest rate of 2.5%, which is paid semi-annually. The last interest is paid along with the principal at maturity.
- The quantity of gold for which SGB is issued, along with the interest earned, remains fixed. Even if the price of gold rises, the price quantity does not change. This protects investors from gold price volatility.
Sovereign Gold Bonds are sold through offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and authorized stock exchanges either directly or through their agents. The application form will be provided by the issuing banks, SHCIL offices, and designated Post Offices and agents.
The form can also be downloaded from the RBI’s website. Banks may also provide online applications through their websites. Customers can apply online through the website of the scheduled banks. RBI offers discounts to investors who apply online and make payments digitally.
How to Buy Sovereign Gold Bond
Offline
Step 1: Visit any of the branches of any authorized agency.
Step 2: Get the form and fill out your details.
Step 3: Submit the completed application form, required documents, and payment proof.
Offline payments are made through cheques, demand drafts, or cash payments at the chosen channel.
Online
Step 1: Login to your online banking account at your preferred bank (an authorized bank).
Step 2: Click on the “e-service” option and then choose the “Sovereign Gold Bond” option.
Step 3: Read the “terms and conditions” by RBI and then “Proceed.”.
Step 4: Fill in the registration form and select “Submit.”.
Step 5: In the purchase form, enter the quantity of subscriptions and the nominee details.
Step 6: Now, after verifying the details, click on the “Submit” option.
After the subscription period closes, the RBI will allot bonds based on the applications received. Investors will be notified about their allotment status. Customers who meet all eligibility criteria are guaranteed an allotment.
Eligibility
Persons resident in India as defined under the Foreign Exchange Management Act, 1999, are eligible to invest in SGB.
Eligible investors include individuals;
- Hindu Undivided Families (HUF)
- Trusts
- Universities and charitable institutions.
- Individual investors with a subsequent change in residential status from resident to non-resident may continue to hold SGB until early redemption or maturity.
Benefits of Buying Sovereign Gold Bond
1. Low Risks
Unlike physical gold, SGBs are held in demat accounts or as certificates. This eliminates concerns about theft, loss, or damage associated with physical gold storage. It also helps avoid paying locker fees or incurring additional expenses for secure storage of physical gold.
2. Capital appreciation
Like physical gold, SGBs offer the potential for capital appreciation when the price of gold rises in the market.
3. Fixed interest income
SGBs provide a guaranteed interest rate of 2.5% per year on your initial investment, payable semi-annually, regardless of the gold price fluctuations. This provides a steady stream of income.
4. Government Backing
SGBs are backed by the Government of India. This adds an element of security and trust to investments, as they generally carry lower risk.
5. Long-term Investment
Investing in SGBs comes with a holding period of eight years. This is a great long-term investment with other benefits.
Is it good to invest in sovereign gold bond?
2. Interest Income: Sovereign gold bonds typically offer a fixed or variable interest rate in addition to any potential capital gains from changes in the price of gold. This interest income can provide a steady stream of returns, especially for investors seeking regular income.
3. Risk Profile: While gold is often perceived as a safe investment, it can still be subject to price fluctuations and market risks. Additionally, sovereign gold bonds may carry sovereign credit risk, although it’s generally considered low for bonds issued by stable governments.
4. Tax Benefits: Sovereign gold bonds offer certain tax advantages such as exemption from capital gains tax upon redemption if held until maturity and indexation benefits for long-term capital gains tax.
5. Liquidity and Convenience: Sovereign gold bonds are listed on stock exchanges, providing liquidity for investors who want to buy or sell their bonds before maturity. Furthermore, they can be held in dematerialized form, eliminating the need for physical storage and associated security risks.
6. Alternative Investments: Consider sovereign gold bonds as part of a diversified investment portfolio. They can serve as a hedge against inflation and currency depreciation, diversifying the overall risk of your investment portfolio.
What is the price of sovereign gold bond in 2024?
The price of Sovereign Gold Bonds (SGBs) in 2024 depends on the specific tranche you’re interested in:
Sovereign Gold Bond 2023-24 Series IV:
This tranche closed for subscription on February 16, 2024. The issue price was:
- Rs. 6,263 per gram for those applying through physical mode.
- Rs. 6,213 per gram for online applicants (discount of Rs. 50 per gram).
Sovereign Gold Bond 2024-25:
The next tranche (Series V) has not yet been announced. The Reserve Bank of India (RBI) typically releases information about upcoming SGB offerings through press releases on its website. You can stay updated by monitoring the RBI website: https://www.rbi.org.in/
Conclusion
Compared to acquiring physical gold, buying sovereign gold bonds can be more profitable, especially due to the fact that they are held in demat accounts and certificates, and they eliminate most of the risks associated with physical gold. While there are benefits to buying SGBs, it is always advised to do your own research before making any investments. Individuals who desire to purchase this bond can follow the steps outlined above for easy guidance.