What is Sovereign Gold Bond (SGB) - How to Apply?

PDF

In this article, we will discuss:

• Exploring the Sovereign Gold Bond Scheme
• Investment Eligibility in Sovereign Gold Bond Schemes
• Calculating the Price of Sovereign Gold Bonds
• Channels for Purchasing SGBs
• Advantages of Investing in Gold Bonds
• How to Buy Sovereign Gold Bonds Online Through Samco
• Different Ways to Buy SGBs
• The Tranche For The 2023-2024 Series Subscription
• RBI Approved Nationalized Banks
• Private Banks To Invest In Gold Bonds Offline
• RBI-Approved Foreign Banks For Offline Gold Bond Investment
• Frequently Asked Questions

Exploring the Sovereign Gold Bond Scheme

Introduced by the Government of India in November 2015 as an alternative to physical gold, Sovereign Gold Bonds, classified as Debt Funds, are denominated in grams and involve cash payment upon issuance, with redemption in cash at maturity. These government securities offer a secure investment, less susceptible to market risks, and are issued in specific time windows with a one-week subscription period. Under the sovereign gold bond schemes bonds mature over 8 years, but investors can exit after 5 years. Sovereign Gold Bonds, available in units starting at 1 gram, offer a 2.50% annual interest rate paid semi-annually over an 8-year duration, with the option for investors to exit in the 5th to 7th years on interest payment dates. Individual and HUF subscriptions are limited to 4 kg, while trusts can subscribe up to 20 kg, with co-ownership following the 4 kg limit for the primary applicant. 

Investment Eligibility in Sovereign Gold Bond Schemes

• Residents of India as per the Foreign Exchange Management Act, 1999 are eligible to invest in Sovereign Gold Bond schemes.
• Eligible investors include individuals, Hindu Undivided Families (HUFs), trusts, universities, educational institutions, and charitable institutions.
• The minimum and maximum limit for investment is in denominations of one gram of gold and in multiples thereof.
• Payment for investing in sovereign gold bond schemes can be made through cash (up to ₹20,000), cheques, demand draft, or electronic fund transfer.
• Nomination facility is available for sovereign gold bond schemes investments, and the bonds are eligible for conversion into Demat form.

Calculating the Price of Sovereign Gold Bonds

To determine the price of Sovereign Gold Bonds (SGB), the calculation involves taking the average of the closing price of 999 purity gold over the last three working days of the week preceding the subscription period. This methodology is established by the Reserve Bank of India (RBI), and the nominal value of SGB is derived from this calculation. The closing price is officially published by the India Bullion and Jewellers Association Ltd (IBJA).

Channels for Purchasing SGBs

Bonds under the Sovereign Gold Bonds Scheme can be acquired through various channels, including:

• Direct purchase or through agents via recognized stock exchanges.
• Stock Holding Corporation of India Limited (SHCIL) and scheduled commercial banks (excluding Payment Banks, Small Finance Banks, and Regional Rural Banks).

Advantages of Investing in Gold Bonds

• Collateral Use: Gold bonds can serve as collateral for loans, adding a valuable dimension to their utility.
• Payment Flexibility: Investors can make payments for these bonds using cash (up to a maximum of Rs. 20,000), demand draft, cheque, or through e-banking.
• DEMAT Conversion: These bonds are eligible for conversion into DEMAT form, providing investors with the convenience of electronic holdings.
• Government Security: Issued in the form of Government of India stock, gold bonds offer a secure investment backed by the government.
• Taxable Interest: The interest earned on gold bonds is subject to taxation as per the provisions of the Income Tax Act, 1961.
• Cost and Risk Elimination: Gold bonds eliminate the costs and risks associated with physical storage, offering a more convenient and secure investment avenue.
• No Making Charges: Unlike physical gold, gold bonds do not incur making charges, and there are no concerns related to purity.

How to Buy Sovereign Gold Bonds Online Through Samco

1. Access Samco Star Platform: Go to Samco Star and log in.
2. Navigate to Investment Section: Find the "IPO/ OFS/ BUYBACK" tab in the main menu.
3. Select Sovereign Gold Bond (SBG): Click on the option related to Sovereign Gold Bonds.
4. Review Bond Details: Check terms, interest rates, and maturity date.
5. Place Bid: Click to bid for the current tranche.
6. Specify Bid Details: Enter quantity and required information accurately.
7. Confirm and Place Order: Review bid details, confirm, and place the order.
8. Payment and Settlement: Follow instructions for payment using trading account funds.
9. Monitor Confirmation and Allotment: Check for order confirmation and bond allotment updates.
10. Hold in Demat Account: Once allotted, monitor holdings in the demat account.

Different Ways to Buy SGBs

1. Digital, Dematerialized, or Physical Format: SGBs can be purchased in these formats.
2. Demat Account Credit: Physical SGBs bought are credited to the demat account.
3. Dematerialization Process: The RBI processes dematerialization until it transfers from the RBI's books.
4. Post-Allotment Demat Process: Demat process completion is possible after allotment.
5. Indirect Purchase: SGBs can be bought indirectly from the secondary market.
6. Post-Subscription Date: Bonds can be purchased after the last subscription date.
7. Primary Issuance: SGBs are available during primary issuance by stock exchanges like NSE or BSE and the RBI.

The Tranche For The 2023-2024 Series Subscription

RBI Approved Nationalised Banks

• Bank of Baroda
• Bank of India
• Bank of Maharashtra 
• Canara Bank
• Central Bank of India
• Indian Bank 
• Indian Overseas Bank 
• Punjab and Sind Bank
• Punjab National Bank
• State Bank of India

Private Banks To Invest In Gold Bonds Offline

• Axis Bank Ltd.
• HDFC Bank Ltd.
• Kotak Mahindra Bank Ltd.
• Bandhan Bank
• ICICI Bank Ltd.
• Lakshmi Vilas Bank Ltd.
• Catholic Syrian Bank Ltd.
• IDFC First Bank Ltd.
• Nainital Bank Ltd.
• City Union Bank Ltd.
• IndusInd Bank Ltd.
• Ratnakar Bank Ltd.
• Development Credit Bank Ltd.
• Jammu & Kashmir Bank Ltd.
• South Indian Bank Ltd.
• Dhanlaxmi Bank Ltd.
• Karnataka Bank Ltd.
• Tamilnad Mercantile Bank Ltd.
• Federal Bank Ltd.
• Karur Vysya Bank Ltd.
• Yes Bank Ltd.
• Samco Securities Limited 

RBI-Approved Foreign Banks For Offline Gold Bond Investment

• Abu Dhabi Commercial Bank Ltd.
• Commonwealth Bank of Australia
• Oman International Bank
• American Express Banking Corporation
• Credit Agricole Corporate and Investment Bank
• Rabobank International
• Antwerp Diamond Bank N.V
• Credit Suisse A.G
• Sberbank
• Arab Bangladesh Bank Ltd. (AB Bank)
• DBS Bank Ltd.
• Shinhan Bank
• Australia and New Zealand Banking Group Ltd.
• Deutsche Bank
• Societe Generale
• Bank International Indonesia
• Doha Bank
• Sonali Bank
• Bank of America
• First Rand Bank Ltd.
• Standard Chartered Bank
• Bank of Bahrain & Kuwait B.S.C
• Hongkong and Shanghai Banking Corporation Ltd.
• State Bank of Mauritius
• Bank of Ceylon
• Industrial & Commercial Bank of China
• Sumitomo Mitsui Banking Corporation
• Bank of Nova Scotia
• J.P.Morgan Chase Bank N.A
• The Royal Bank of Scotland N.V
• Bank of Tokyo – Mitsubishi Ltd.
• JSC – VTB Bank
• UBS AG
• Barclays Bank
• Krung Thai Bank
• United Overseas Bank Ltd.
• BNP Paribas
• Mashreqbank
• Westpac Banking Corporation
• China Trust Bank
• Mizuho Corporate Bank Ltd.
• Woori Bank
• Citibank N.A
• National Australia Bank

Apart from these banks you can also visit post offices to invest in sovereign gold.

Frequently Asked Questions

1. What is a Sovereign Gold Bond (SGB), and who issues it?

SGBs are government securities in grams of gold, acting as substitutes for physical gold. The Reserve Bank issues them on behalf of the Government of India.

2. Why choose SGB over physical gold, and what are the benefits?

SGBs protect the invested gold quantity, providing market price at redemption. They eliminate storage costs, offer market value assurance, and avoid issues like making charges and purity. Bonds are held in RBI's books or demat form.

3. Are there risks in SGB investment?

There's a potential capital loss if gold market prices decline, but the investor retains the units of gold they paid for.

4. Who can invest in SGBs?

Individuals, HUFs, trusts, universities, and charitable institutions resident in India (as per Foreign Exchange Management Act, 1999) are eligible. Even those changing residential status can hold SGB till redemption/maturity.

5. Is joint holding allowed for SGBs?

Yes, joint holding is permitted.