How to Buy Sovereign Gold Bonds?

India is one of the biggest importers of gold in the world, vying for the top spot with China in recent years. This import has been a drain on foreign exchequers for the government that finally introduced many schemes to deter inbound shipments of the precious metal. Sovereign Gold Bond is one of such schemes.

In India, gold is purchased both for consumption, mainly as jewellery, and as an investment. With Sovereign Gold Bonds the government is mainly trying to target those who want to buy gold for investment or for consumption in future.

What are Sovereign Gold Bonds? 

Under Sovereign Gold Bonds scheme, the government pays interest, currently 2.5% per annum, on the value of the bond bought by the investor. Also, on maturity—eight years--the value of gold represented by the bonds is returned to the investor.

So, let’s say you want to buy gold for investment purposes or for future use. Instead of buying the physical gold that may include making charges if bought as jewellery, and storage cost, you can buy sovereign gold bonds of similar value from the government.  Now this bond will also pay you interest, unlike the physical gold, it has liquidity (can be transferred or sold after two weeks), and will carry all the benefit of the rise in prices of the precious metal at maturity.

Let us try this with an example: Person A buys Sovereign Gold Bond equal to 10 grams of gold (assumed at Rs 10,000). A will get interest of 2.5% semi-annually on initial investment amount till eight years. In case A wants to sell or transfer the bonds, he is free to do so after two weeks. He is also free to seek redemption after five years or can wait till maturity for eight years. At maturity, A will get the value of 10 grams of gold at that time credited to his account.

Features and Benefits of Sovereign Gold Bonds

Sovereign Gold Bonds offer many tax incentives for the users apart from the advantage of benefiting from the rise in prices of gold. Here are some of the features and benefits of buying Sovereign Gold Bonds:

Issuer: Sovereign Gold Bonds are issued by the Reserve Bank of India on behalf of the central government.

Issuance: Gold bonds are issued in tranches. The RBI notifies each tranche in advance and the price for each tranche is benchmarked to prevailing gold price in the market.

Limits: An individual or Hindu Undivided Family can buy Sovereign Gold Bond of minimum 1 gram value of gold and maximum 4 kg. The ceiling is 20G for entities like charitable trusts.

Interest rate: Interest is payable semi-annually and the rate is fixed at the time of issuance.

Redemption: Maturity period is set at eight years with exit options from fifth year. Redemption price is average closing price of 999 purity gold on preceding three business days from the date of repayment.

Online investment: A discount of Rs 50 per gram is given for online investors.

Loan: Gold bonds can be used as collateral for loan, similar to physical gold.

Liquidity: Such bonds can be traded on stock exchanges within two weeks of issuance.

Tax on interest: Tax is payable on interest received by investors.

Tax on redemption: There is no tax on capital gains at maturity.

Indexation: If sold before maturity, indexation benefits are allowed on long-term gains.

TDS: There is no tax deduction at source (TDS).

Safety: There is no carrying cost unlike physical gold and the safety is ensured as they are backed by the government.

Denomination: The bonds are denominated in grams of gold with increment value of minimum 1 gram.

Who can Buy Sovereign Gold Bonds?

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to buy Sovereign Gold Bonds or SGBs. Eligible investors include individuals, Hindu Undivided Family or HUF, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold the bonds till early redemption or maturity.

Maximum limit of subscription to bonds is 4 kg in a year for individuals and Hindu Undivided Family and 20 kg for trusts and similar entities notified by the government from time to time. In case of a 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.

Each member of a family can buy up to bonds representing 4 kg in value individually every year and every application must be accompanied by PAN (permanent account number).

Who is authorised to sell Sovereign Gold Bonds?

Sovereign Gold Bonds can be bought from offices or branches of state-owned banks, scheduled private banks, scheduled foreign banks, designated post offices, Stock Holding Corporation of India Ltd. and authorised stock exchanges either directly or through their agents.

All those who apply for bonds are assured of allotment as long as their papers are in order.

They can also be bought from the website of all qualified organisation at a discount of Rs 50 per gram on nominal value for that particular tranche.

How To Buy Sovereign Gold Bonds?

Such bonds can be bought during primary issuance by the RBI or from secondary market. Let us look at the procedure individually.

Primary issuance:

Online

1. The RBI announces sale of gold bonds in tranches. These bonds are open for few days for primary issuances at that time.
2. When a tranche is open, log in to the website of your bank and choose investment or services section (may be slightly different for each bank)
3. Choose Sovereign Gold Bond
4. Accept the conditions after reading them carefully
5. Enter the quantity you want to buy
6. Select submit

Offline

1. Visit any commercial bank or post office registered to sell Sovereign Gold Bonds.
2. Fill out the application form
3. Submit PAN and other KYC documents
4. Pay the money and take receipt
5. You will be notified when the bonds are moved to you credit

Secondary market:

1. More than 60 Sovereign Gold Bonds are listed on BSE and NSE for trading
2. Search for the scrip of the bond that you want to buy
3. Place a buy order
4. The bonds will be credited on T+1 basis
5. Liquidity in Sovereign Gold Bonds is currently not very high in secondary market

Sovereign Gold Bond Scheme Calendar for premature redemption during April 2023 September 2023

Gold bonds can be redeemed after five years. So, bonds issued from November 2015 to May 2018 can be prematurely redeemed during April 2023 September 2023. This redemption can be done on coupon payment dates.

Here are the details:

Conclusion

Sovereign Gold Bond is a smart way to diversify your portfolio and invest in gold without having to keep it in physical form. The interest paid by the government on the bonds is icing on the cake. Such bonds have become a popular medium for investment also because of the tax advantage and security of being backed by the government. Overall, such bonds offer a convenient, secure, and financially rewarding way to invest in gold in India.