Everything You Need to Know Before Investing in Sovereign Gold Bonds

Find out where to buy the bonds, how to buy, sell, reimburse or use them as collateral

Everything You Need to Know Before Investing in Sovereign Gold Bonds
Everything You Need to Know Before Investing in Sovereign Gold Bonds
Harsh Kumar - 09 August 2021

The Reserve Bank of India on Monday issued the fifth tranche of the Indian government’s Sovereign Gold Bonds (SGBs) for financial year 2021-22.

Importantly, the government has set the issue price of the latest tranche at Rs 4,790 per gram of gold with an end date of August 13, 2021.

What are SGBs?

SGBs are regarded as substitutes for owning solid gold, which is issued by the Reserve Bank of India (RBI) on behalf of the government and its securities denominated in grams of gold.

Who can invest in it?

All residents of the country who are under the Foreign Exchange Management Act, 1999, are eligible to buy SGBs. Eligible investors also include Hindu Undivided Families (HUFs), trusts, universities and charitable institutions. Also, even if the investor’s residence state shifts from resident to non-resident, they may continue to hold SGBs till early redemption or maturity.

Here are the steps to follow to invest in SGBs:

For SBI account holders, log in to your SBI net banking account; click on eServices and go to ‘Sovereign Gold Bond’; select ‘terms and conditions’ and click on ‘proceed’; fill in the one-time registration form; click on submit; enter the subscription quantity and nominee details in the purchase form; click on ‘submit’.

For HDFC customers, invest via NetBanking or Demat account and avail Rs 50 discount per gram. Log in to your Net Banking and click on ‘Offers’ tab to get started. You can even visit your local HDFC bank branch.

For Stock Holding Corporation of India Limited (SHCIL), visit https://www.stockholding.com/sovereign-gold-bonds.php. Click on “Stock holding NSDL & CDSL client login”; “Non-stock holding demat account holders login”; or “Physical SGB application form”, as applicable.

Benefit and risks of buying SGBs

The same quantity of gold for which an investor has paid gets shielded. At the time of early redemption or maturity, they get the ongoing market price. They also get periodic interest payouts. Moreover, SGBs don’t carry making charges or questions over purity of the gold in jewellery form. The bonds are held in RBI lists or demat, removing the risk of loss of scrip.

On the flip side, the investor may have to face capital loss if the market price of gold slumps. However, they won’t lose in terms of units of gold they paid for.

For the initial investment, the government has fixed interests at the rate of 2.50 per cent per annum, credited semi-annually to the investor’s bank account. On maturity, the last interest is payable along with the principal.

Minimum and maximum ceilings for investment

As per notification, the minimum investment in the bond is 1 gm; the maximum is 4 kg for individuals and HUFs, and 20 kg for trusts and similar entities, as notified by the government from time to time per fiscal year.

Also, if you have joint holding, the limit applies to the first applicant. While applying, you can make the payment through cash of up to Rs 20,000, cheques, demand draft or electronic fund transfer.

Use SGBs as collateral

SGB securities are likely to be utilised as collateral for loans from banks, financial institutions and Non-Banking Financial Companies (NBFCs). The loan-to-value ratio will be the same as an ordinary gold loan, as prescribed by RBI from time to time. Giving credits on SGBs would be subject to the choice of a particular bank and financing agency, and can’t be assumed as a right.

Authorised agencies for selling SGBs

For selling SGBs, offices or branches of nationalised banks, scheduled private banks, scheduled foreign banks, assigned post offices and the SHCIL have been authorised by RBI.

Application forms can be availed from authorised entities and agents, or downloaded from the RBI website. Authorised banks may also give an online application facility.

Exiting from the investment

To exit, you can visit offices of the concerned bank, SHCIL, post office or the agent 30 days before the coupon payment date. Request for early redemption can particularly be viewed if you approach the concerned bank or post office at least one day prior to the coupon payment date. Yields will be credited to the investor’s bank account.


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