Gold has been a popular investment choice for centuries, and its value remains stable in the current market. Investing in gold in India is possible through the Sovereign Gold Bond (SGB) scheme. The Indian government introduced this scheme in 2015 to provide investors with a hassle-free and cost-effective gold investment method. This article will explain how to buy Sovereign Gold Bonds.
What is a Sovereign Gold Bond (SGB)?
A Sovereign Gold Bond (SGB) is a government-issued security denominated in grams of gold, where 1 gm is considered 1 unit. The Reserve Bank of India issues these bonds on behalf of the Government of India. SGBs are issued in multiples of one gram and can be purchased by individuals, HUFs, trusts, and other entities. The minimum investment in SGBs is one gram; the maximum is 4 kg for individuals and 20 kg for trusts and other entities. The interest on SGB is 2.5% per annum, payable semi-annually. The maturity period of SGB is 8 years, with an exit option after the 5th year. The redemption price of SGBs is based on the prevailing gold prices.
The Reserve Bank of India issues these bonds under the Government of India stocks. A predetermined subscription window is established during which the Sovereign Gold Bond Scheme is issued to investors in tranches. Typically, the Reserve Bank of India (RBI) issues press releases at intervals of 2-3 months to announce the issuance of new sovereign bonds. Interested individuals have a one-week subscription window to participate in this scheme. A holding certificate is issued in the investor’s name upon purchasing a sovereign gold bond.
What are the Steps To Buy Sovereign Gold Bonds?
Step 1: Check for the SGB Issuance Dates
SGBs are issued in tranches throughout the year, and the government announces the issuance dates. You can check the issuance dates on the official website of the Reserve Bank of India or the National Stock Exchange (NSE).
Step 2: Check the Gold Price
The price of SGBs is based on the prevailing gold prices. Before investing, you should check the gold price on the issuance of SGBs. The price of gold can be found on the official website of the Reserve Bank of India or any other financial website.
Step 3: Apply for SGB
There are various ways to apply for the Sovereign Gold Bond Scheme. You can apply through banks, post offices, and stockbrokers. Let’s discuss the application process through various banks.
i. Branch visit
Visit the bank where you have an account. The bank should be authorised to accept applications for SGBs. You can check the list of authorised banks on the official website of the Reserve Bank of India.
ii. Fill out & submit the Application Form
Ask the bank executive for the SGB application form. Fill in the required details, such as the amount of investment, the number of grams you want to invest in, and the mode of payment and submit it along with the necessary documents, such as a copy of your PAN card, address proof, and identity proof. The bank executive will verify the documents and the application form.
iii. Make the Payment
After verifying the documents and the application form, pay through cash, cheque, or online transfer. The bank executive will issue you a receipt for the payment.
What are the Advantages of Sovereign Gold Bonds?
There are several advantages of buying Sovereign Gold Bonds, which are discussed below-
- Safe and Secure Investment Option
One of the primary advantages of investing in Sovereign Gold Bonds is that it is a safe and secure investment option. Unlike physical gold, there are no safety concerns associated with SGBs.
- Higher Returns Than Physical Gold
SGBs offer higher returns than physical gold. The government pays an additional interest rate on SGBs, which is currently 2.5% annually. This interest rate is added to the price of gold, which makes the returns on SGBs higher than physical gold.
- Tax Benefits
SGBs also offer tax benefits to investors. The interest earned on SGBs is taxable as per the income tax laws, but there is no tax on the capital gains made on the redemption of SGBs. This makes SGBs a tax-efficient investment option.
- No Making Charges
Investors have to pay to make changes to the jeweller when investing in physical gold. These charges can be significant and can reduce the returns on investment. However, there are no making charges associated with SGBs, which makes them a cost-effective investment option.
What are the Risks Involved in Buying Sovereign Gold Bonds?
While Sovereign Gold Bonds (SGBs) are considered a relatively safe investment option, there are some risks involved that investors should be aware of.
- Fluctuations in Gold Prices
SGBs are linked to the price of gold, which can be volatile and subject to fluctuations. The value of SGBs can vary based on changes in the price of gold. If the price of gold falls, the value of SGBs can also decline.
- Interest Rate Risk
SGBs offer an additional interest rate of 2.5% per annum. However, this interest rate is fixed and does not change during the bond’s tenure. If the interest rates in the market increase, the returns on SGBs can become less attractive compared to other investment options.
Sovereign Gold Bond Maturity & Amount
SGB has a lock-in period of 5 years and a maturity period of 8 years. Upon the completion of 8 years, you will receive the maturity amount. The final value of the investment is determined by the prevailing market price of gold at the end of the 8-year term. If there is an increase in the price of gold over time, it will result in a profit. In the event of a decrease in the price of gold, you will likely experience a financial loss. The Reserve Bank of India (RBI) will give the investor one month’s notice of the bond’s maturity date.
The Bottom Line-
Sovereign Gold Bonds are a relatively safe investment option compared to physical gold. Investing in SGBs is a convenient and cost-effective way to invest in gold. Before investing, remember to check the issuance dates, the gold price, and the authorised banks.