Sovereign Gold Bonds (SGB) 2023-24

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Gold is an asset that holds emotional and social value in India. It is the most coveted asset that is also considered an auspicious investment. But holding physical gold comes with its own set of risks and costs. Hence, the Government of India introduced Sovereign Gold Bonds (SGB) in November 2015. SGBs are debt securities denominated in grams of gold and are issued by the RBI on behalf of the government. They are denominated in gold and pay a fixed interest of 2.5% p.a to their investors. This article covers SGBs, its features, and its advantages in detail.

Upcoming SGB 2024

Trance	2023 – 2024 Series II
Sovereign Gold Bond Returns	2.5% p.a + Market Returns
Minimum Investment	1 Gram
Maximum Investment	4 Kg
Tenure	5 Years
Charges	Nill
Date of Subscription	September 11 to September 15 2023
Date of Issuance	September 20

What is Sovereign Gold Bond Scheme (SGB)?

Sovereign Gold Bonds (SGB) are government securities denominated in gold. The bonds are issued by the Reserve Bank of India on the government’s behalf. Hence these gold bonds will be a good substitute for physical gold. The purchase and redemption upon maturity both happen in terms of cash and not gold.

SGBs are debt securities that were introduced in November 2015 and enable one to own gold in certificate format. SGBs are fully transparent, and they also track the import-export value of the gold. Since the government backs it, SGBs are considered as safe. They are denominated in grams, and investors can purchase these in terms of grams. The minimum investment in SGBs is one gram, and the maximum is 4 kg for individuals and Hindu Undivided Family HUF. However, for trusts and similar entities, 20kgs is the maximum investment.

Returns from Sovereign Gold Bonds is in terms of interest and capital appreciation. Investors get a fixed interest rate of 2.5%p.a. in a financial year Moreover, it is over and above the gold price return. The interest payments are made every six months. The tenure of these bonds is eight years, and the bonds mature after this period.

The Sovereign Gold Bonds India are sold at the last three days’ simple average of the closing price of gold of 999 purity preceding the subscription period. The gold prices will be the ones published by the India Bullion and Jewellers Association Limited, and they will be denominated in INR.

Redemption

The redemption proceeds automatically get deposited in the bank account of the investor. However, one can exit the scheme after a lock-in of 5 years. Also, one can always sell the bonds on the secondary market. But the capital gains are subject to tax similar to physical gold. Though the interest earned is taxable, there is no TDS at the time of interest payout or redemption. Also, at maturity, there is no tax on capital gains levied on the investment proceeds.

In the recent past, investment in physical gold has seen a decline, while SGBs have witnessed a significant demand. Mainly because these investments are held in the forms of a certificate, and the risks of carrying physical gold are minimized. Also, there is no storage and carrying costs for these investments.

One can invest in SGBs through any SEBI authorized agent, and all the transactions take place online. The purchase, interest accumulation and redemption are routed through a bank account.

Recommended Read: Capital Gain Bonds

Features of Sovereign Gold Bond Scheme (SGB)

Following are the features of the SGB:

Eligibility

All Indian residents are eligible to invest in a Sovereign Gold Bond Scheme. HUFs, trusts, universities, and charitable institutions can also invest in SGBs. Furthermore, guardians can invest on behalf of minors.

Sovereign Gold Bond Investment Limit: Minimum and Maximum

Gold bonds are assessed in multiples of grams of gold. One unit is equal to 1 gram. The minimum investment is 1 gram of gold, while the maximum limit is 4 kgs of gold per investor and for Hindu Undivided Family. Whereas for entities, 20kgs of gold is the permissible limit.

Tenure and Premature withdrawals

The tenure of SGBs is eight years. The Sovereign Gold Bonds in India have a mandatory lock-in period of five years. However, the investor can withdraw the bond after the 5^th year. The withdrawals are allowed only on interest payout dates.

Sovereign Gold Bond Interest Rate / Return

The gold bond rate of interest is 2.5% in a financial year currently. The interest payout is twice a year on the nominal value of the investment. The returns are linked to the current market price of the gold.

Taxation

The interest on these bonds is taxable as per the Income Tax Act, 1961. On redemption, there is no capital gains tax on this. Also, the long term capital gains come with indexation benefits.

Redemption Price

The redemption price of SGBs in the last three days average closing price of gold of 999 purity.

Bond Issuance

On behalf of the Indian Government, RBI issues gold bonds as per the GS Act, 2006. Investors will receive a holding certificate for their gold bond investment. Furthermore, one can also convert it to a Demat Form.

Joint Holding

SGB can be jointly held. Also, in case of joint holding, the limit on investment applies to the first holder.

KYC

The investors have to follow the same KYC norms while buying SGBs.

Eligibility for Statutory Liquidity Ratio (SLR)

In case banks acquired bonds after going through the process of hypothecation, raising lien, or pledging, then they accounted for the Statutory Liquidity Ratio. SLR is the capital a commercial bank retains before giving credit to customers.

Authorized Agencies

The Government of India sells bonds through multiple channels. The channels such as Stock Holding Corporation of India (SHCIL), Banks, selected post offices and authorized stock exchanges either directly or through their agents. The trading of the SGBs can be done through intermediaries or stock exchanges such as the National Stock Exchange and Bombay Stock Exchange.

Commission

The receiving office levies a 1% commission on the overall subscription amount for the distribution of the bond. At least half of this commission is shared with the intermediaries – brokers or agents.

Advantages of investing in Sovereign Gold Bond Schemes (SCB)

Following are the advantages of investing in SGBs:

Safety

SGBs do not carry any risk associated with holding physical gold, except the market risk. The bonds do not have any hefty making or designing charges or TDS. Furthermore, no one can steal or change ownership.

An additional source of Income

SGBs offer guaranteed annual interest at 2.5%. The interest payout frequency is twice a year. This can be an additional source of income.

Hedge against Inflation

Historically, gold prices have demonstrated extensive capital appreciation. Therefore, one can enjoy growth in their investment’s real value, and they can accumulate substantial wealth over time.

Online

An investor can apply for SGB online through the website of the listed commercial banks. For online applications and payments, the issue price of the bonds is usually lesser by INR 50 per gram than the nominal value.

Demat Account

Investors can hold the SGBs in their demat account. For this, they have to make a specific request in the application form itself. The bonds will be held in RBI’s books till the process of dematerialization is finished. Also, the facility to convert to demat is available subsequent to the allotment of the bond.

Indexation Benefit

In case an investor transfers their bond before maturity, then they can benefit from indexation. Furthermore, there is a sovereign guarantee on the redemption money and also on the interest earned.

Easily Traded on the Stock Exchange

One can trade their SGBs on the secondary market. For example, after holding the bond for five years, one can trade them on the National Stock Exchange or Bombay Stock Exchange.

Collateral

Banks accept SGBs as collateral against loans. They treat them as a gold loan after setting the loan-to-value (LTV) ratio to the value of gold. The India Bullion and Jewellers Association Limited determines the ratio.

Who should invest in Sovereign Gold Bond Schemes (SGB)?

Investors who like Gold as an asset can consider investing in these bonds. These bonds are low-risk investment options and therefore are suitable for those individuals with low-risk tolerance levels. SGB bonds also give fixed income bi-annually by way of interest payouts. In comparison to physical gold, the cost of acquiring and selling the bonds is lower.

Investing in SGBs also reduces the hassle of keeping physical gold safely. Therefore, individuals who do not want such a hassle can invest in them. The chances of theft are zero as the bonds are held in a demat account and in a paper form. Individuals seeking a long term investment option to make good returns can invest in a gold bond.

How to buy sovereign gold bond in India?

These bonds are sold only through the following entities:

Nationalized banks
Scheduled private and foreign banks
Designated post offices
Stock Holding Corporation of India Ltd. (SHCIL)
Authorized stock exchanges

Investors can apply for SGBs either through online or offline mode. They can apply offline by visiting any branch of the above-mentioned entities. Or they can apply online by visiting the website of listed scheduled commercial banks. Furthermore, the investors applying online will get the SGBs that are INR 50 less than the nominal value. Also, the payment for online applications is to be done through digital mode.

Sovereign Gold Bond Maturity Period

The sovereign gold bond has an eight-year maturity period, but you can exit the bond starting from the fifth year. However, only on interest payout dates.

Sovereign Gold Bond Premature Redemption Price

On October 27, 2023, the RBI declared a premature redemption price of INR 6,079 per unit for SGBs issued on October 30, 2017. Investors can initiate early redemption of their SGBs after the fifth year from the date of issuance, aligning with the interest payment date. Thus, investors who have invested in SGBs from October 30, 2017, can redeem them prematurely on October 30, 2023, at INR 6,079 per unit.

The premature redemption price is determined based on the simple average closing price of gold with 999 purity over the preceding three working days, as reported by the India Bullion and Jewellers Association Ltd.

How to Check Sovereign Gold Bond Status?

If you purchase an SGB online with a Demat account, the portfolio will reflect the SGB issuance. The issuing bank, post offices, SHCIL offices, designated stock exchanges, or agents can provide the SGB holding certificate for offline purchases. The RBI will send the digital copy of the holding certificate to the email address specified in the application form.

Sovereign Gold Bond Certificate Download

The issuing authority will issue the holding certificate to customers on the SGB issuance date. The certificate will be emailed to the registered email ID or reflected in the Demat account on the SGB issuance date. Customers also have the option to collect the certificate of holding from the bank branch.

Sovereign Gold Bond Tax Exemption Under Section 80C

SGB investments do not qualify for tax deduction benefits under Section 80C of the Income Tax Act. The interest earned on SGB deposits is also not tax-exempt. When filing your tax returns, you must declare the interest amount under ‘Income from Other Sources’. TDS does not apply to SGBs. When held till maturity SGBs are exempt from capital gains tax.

Sovereign Gold Bond Schemes (SGB) vs Gold ETF vs Physical Gold

Particulars	Physical Gold	Gold ETF	Sovereign Gold Bond
Returns	Lower, due to making charges	Lower than actual return on gold	Higher than actual return on gold
Safety	Great risk of theft and wear and tear	High	High
Purity	The purity of gold is always questionable.	High	High
Gains	Long Term Capital Gains after three years	LTCG after three years	Long term capital gains after three years and no tax if redeemed after maturity
Loan	It can be used as collateral for loans.	One can avail a loan against their Gold ETFs.	It can be used as collateral to avail a loan.
Tradability or exit formalities	Restrictive	Tradable on the Stock Exchange	Can be traded on the stock exchange. The bonds will be redeemed after the 5th year
Storage	High storage cost	Minimal cost	Minimal cost

You may also like to read about the Gold ETF vs Gold Sovereign Bond

What are Sovereign Gold Bonds (SGB)? Who is the issuer?

Sovereign Gold Bonds are debt securities. RBI on behalf of the Indian Government issues these bonds. These are gold securities that are an alternative to physical gold and are held in certificate format. The minimum investment in SGBs is one gram, and a maximum of 4 kg for individuals and Hindu Undivided Family HUF. However, the maximum limit of investment is 20 kg for trusts and similar entities.

The return from SGBs is in the form of fixed interest. Since the Government of India backs them, they are considered safe. The interest from these bonds is 2.5% per annum, and this is over and above the capital gains from the investment. The tenure of these bonds is usually around eight years, and one can sell the bonds on the stock exchange after five years from the date of issue. The interest earned is taxable; however, the redemption proceeds on maturity are tax-free.

Who is eligible to invest in the SGBs?

Indian residents, as per the Foreign Exchange Management Act of 1999 are eligible to invest in SGB. The following investors are eligible to invest in SGBs individuals, HUFs, universities, charitable institutions and trusts. Furthermore, investors with a subsequent change in their residential status from resident to a non-resident can continue to hold SGB till early redemption or maturity.

Conclusion

Gold is an asset with a social and emotional value attached to it, especially in India. It is the most desired asset that one wishes to hold. Every auspicious occasion in India is celebrated with the purchase of gold. However, holding physical gold comes with certain risks and costs. The risk of theft and high storage costs increase with the increase in the price of gold. Hence, the gold bonds will be good substitutes for holding physical gold. They are issued in certificate format, almost eliminating the risk in investing in them. With a fixed interest rate and no capital gains tax on redemption at maturity, they are considered a very attractive investment option.

Gold also acts as a hedge against inflation and currency risk. Also, investors need not shell out a lot to purchase SGBs as the minimum investment is one gram. Moreover, gold is an asset class different from equity and debt securities. Hence investing in SGBs will help in diversifying the investment portfolio. Investors can consider investing in them and spread out the risk in their investment portfolio.

Read also about the Sovereign Gold Bond vs Fixed Deposit

Frequently Asked Questions

At what price the bonds are sold?

The gold sovereign bond price will be the last three days’ simple average of closing price of gold of 999 purity before the subscription period. The gold price will be the ones published by the India Bullion and Jewelers Association Limited, and they will be denominated in INR.

What will I get from the redemption of the Sovereign Gold Bond Scheme?

Upon redemption of SGBs, the redemption proceeds will be transferred to the investor’s bank account. And the redemption proceeds or the Sovereign Gold Bond price will be at the last three days simple average of closing price of gold of 999 purity before the repayment period. The gold prices will be the ones published by the India Bullion and Jewelers Association Limited, and they will be denominated in INR.

Can I get the bonds in Demat form?

The bonds can be held in demat format after giving an application for the same. The gold bonds will be held by RBI until the dematerialization process is complete. Also, one can request to convert the bonds into demat format post the allotment of these bonds.

Is tax deducted at source (TDS) applicable on the bond?

Sovereign Gold Bonds do not have TDS on interest or redemption proceeds. However, the investor is responsible for paying tax on the interest and capital gains tax on early redemption proceeds.

Can a Minor invest in SGB?

Yes. The guardian of a minor can invest in SGB on behalf of them.

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