Investing in Sovereign Gold Bonds (SGBs) is a prudent choice for those looking to diversify their investment portfolio with a stable and government-backed instrument. SGBs are issued by the Reserve Bank of India (RBI) on behalf of the Government of India, offering an excellent opportunity for investors to invest in gold without the need to buy physical gold. Here’s a comprehensive guide on how to invest in Sovereign Gold Bond.
What Are Sovereign Gold Bonds?
Sovereign Gold Bonds are government securities denominated in grams of gold. They offer an alternative to purchasing physical gold, eliminating the risks and costs associated with storage and security. These bonds are issued in multiples of one gram of gold, and the minimum investment is one gram. The maximum subscription limit for individuals and Hindu Undivided Families (HUFs) is 4 kilograms, and for trusts and similar entities, it is 20 kilograms.
Why Invest in Sovereign Gold Bonds?
- Interest Earnings: Unlike physical gold, SGBs offer an annual interest rate of 2.50%, payable semi-annually.
- Tax Benefits: The capital gains tax arising on redemption of SGBs is exempted. Additionally, if the bonds are held until maturity, investors enjoy indexation benefits.
- Safety and Security: SGBs are backed by the Government of India, ensuring safety. They also eliminate the risks of theft and purity issues associated with physical gold.
- Liquidity: SGBs can be traded on stock exchanges within a specified date, providing liquidity. They can also be used as collateral for loans.
Steps to Invest in Sovereign Gold Bonds
1. Eligibility and KYC Requirements
Before investing, ensure you meet the eligibility criteria. Resident individuals, HUFs, trusts, universities, and charitable institutions are eligible to invest. You will need to complete the Know Your Customer (KYC) process, similar to opening a bank account. Documents such as Aadhaar card, PAN card, and passport-sized photographs are required.
2. Application Process
a. Where to Apply
You can apply for SGBs through:
- Scheduled commercial banks (excluding small finance banks and payment banks)
- Designated post offices
- Recognized stock exchanges (NSE and BSE)
- Stock Holding Corporation of India Limited (SHCIL)
- Authorized brokers
b. How to Apply
Applications can be submitted online or offline. Most banks and financial institutions offer online application facilities through their websites or mobile banking apps. Offline applications can be submitted at designated branches of banks and post offices.
3. Issue Price and Payment
The issue price of SGBs is determined based on the simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Ltd (IBJA), for the last three working days of the week preceding the subscription period. A discount of ₹50 per gram is offered for investors applying online and making digital payments.
Payments can be made through cash (up to a maximum of ₹20,000), demand draft, cheque, or electronic banking.
4. Allotment and Holding Certificate
Once the application is processed, you will receive a Certificate of Holding as proof of investment. This certificate can be converted into Demat form if desired, enhancing ease of management and transferability.
5. Interest Payment and Maturity
Interest on the bonds is credited semi-annually to the investor’s bank account. The bond has an eight-year maturity period, with an exit option available from the fifth year onwards on interest payment dates. On maturity, the redemption amount is credited to the investor’s bank account, and capital gains tax is exempted.
Secondary Market and Early Redemption
If you wish to exit before the maturity period, SGBs can be traded on stock exchanges, provided they are held in Demat form. The price of SGBs on the secondary market is influenced by the prevailing gold prices and interest rates.
Early redemption is allowed after the fifth year from the date of issue, on coupon payment dates. The redemption price is based on the simple average of closing gold prices of 999 purity for the previous three business days.
Conclusion
Investing in Sovereign Gold Bonds is a strategic way to benefit from the appreciation of gold prices while earning regular interest. It offers a blend of safety, liquidity, and tax efficiency. By following the outlined steps and understanding the benefits, investors can make informed decisions and add a valuable asset to their investment portfolio. Whether you are a seasoned investor or a beginner, SGBs provide a reliable and government-backed avenue to invest in gold.