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Sovereign Gold Bonds Scheme – A Complete Guide

Author Clarice Mendonsa | Posted September 18, 2021

For centuries, people have had a fascination with Gold. It is the world’s most popular investment as you can melt it, redesign it and use it dynamically.

But with rising demand and prices, retail investors think a million times before buying gold jewellery. That’s because apart from gold you must also pay for the making charges which is quite high. And we haven’t even considered the hassles, risks and cost of storage.  

Sovereign Gold Bond

So, what if I show you a better and risk-free alternative to investing in gold without all of these hassles. Sounds Interesting right? I’m referring to Sovereign Gold Bond Scheme.

Today let’s explore everything about Sovereign Gold Bond Scheme. 

In this article:

  1. What are sovereign gold bonds?
  2. Benefits of gold bonds
  3. How can you buy sovereign gold bonds?
  4. Can you buy sovereign gold bonds from the secondary markets?
  5. Comparison between physical gold and sovereign gold bond scheme
  6. Tax implication on sovereign gold bond
  7. Are sovereign gold bonds right for you?
  8. FAQs

What are Sovereign Gold Bonds?

A Sovereign gold bond is a hassle free option to invest in gold. These bonds are issued by the Reserve Bank of India (RBI) on behalf of the government. They were first issued in November 2015 to reduce the demand for physical gold, provide hassle free investment and encourage investment habits among individuals.  

The value of the bond is derived from the underlying one gram gold with 999% purity. Its value is calculated by taking an average of closing prices of the last three working days before the subscription period. This is done by the India Bullion and Jewellers Association Limited.

Every bond has a specific lock-in period. Similarly, sovereign gold bonds come with a lock-in period of 8 years. During the tenure, you not only get the benefits of capital appreciation but also a simple interest at the rate of 2.50% per annum paid on a half-yearly basis.

Sovereign gold bonds are issued by RBI in 4-6 tranches every year under the consultation of the Government of India. 

Here are the tranches of gold bonds issued in 2021: 

TrancheDate of SubscriptionIssue Date
2021-22 Series I17th May to 21st May 202125th May 2021
2021-22 Series II24th May to 28th May 20211st June 2021
2021-22 Series III31st May to 4th June 20218th June 2021
2021-22 Series IV12th July to 16th July 202120th July 2021
2021-22 Series V9th August 09 to 13th August 202117th August 2021
2021-22 Series VI30th August to 3rd September 20217th September 2021

Watch this video to learn about sovereign gold bonds

Benefits of Investing in Sovereign Gold Bonds

  • Hassle-free Investment 

Investing in physical gold has multiple limitations such as fear of theft, storage cost, insurance and a lot more. Hence, people avoid purchasing physical gold in huge quantities.  But with sovereign gold bonds, you can buy up to 4 Kg of gold without any physical possession. Moreover, there are no hefty making charges or storage costs involved. 

  • Dual Streams of Return

Sovereign gold bonds offer you two streams of income. 

Capital appreciation of gold: In November 2015, one unit of sovereign gold bond was issued at Rs 2,684. Today it is priced at Rs 4,837. If you had bought even one unit at that time, you could have earned 80% capital appreciation over the issue price. 

Interest payment: Apart from capital appreciation you also earn a simple interest of 2.5% per annum. It means the interest you earn will not compound. Instead, it will be credited to your bank account semi-annually. 

  • 999% Pure gold 

A big issue with physical gold is its purity. Jewellers often fool investors with 916 gold or 22-carat gold. But with sovereign gold bonds, 999% purity gold is guaranteed. Each unit of the sovereign gold bond is linked to the price of 24-carat gold published by India Bullion and Jewellers Association Limited. Hence, Sovereign Gold Bond ensures the quality of gold is protected.

  • Easily Tradable on the Stock Exchanges

Investors are free to sell their bonds on the stock exchanges National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) after holding the bond for five years.

  • Ease of Borrowing

The sovereign gold bonds can also be used as collateral for loans. You can easily avail this loan facility at banks and non-banking financial institutions (NBFCs). These loans are considered gold loans.

  • Hedge against Equity Markets

Historically, gold and equity markets had an inverse relationship. This is because when markets are falling, investors flock to gold as a safe haven. This increases its demand and price.  So, investing in sovereign gold bonds is a great way of hedging your market risk.

  • Discount on Online Purchase

If you invest in sovereign gold bonds online, you get a discount of Rs 50 per gram of gold than the nominal value you would pay in an offline transaction.

How Can You Buy Sovereign Gold Bonds?

You can invest in sovereign gold bonds in two ways.

  1. Offline application
  2. Online application

First, let us understand the offline process of investing in a sovereign gold bond.

Offline Application:

You can invest in sovereign gold bonds through nationalised banks, private banks, foreign banks and post offices. 

    List of 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

List of 21 Private Banks Through Which You Can Invest in Gold Bonds Offline.

Axis Bank Ltd.HDFC Bank Ltd.Kotak Mahindra Bank Ltd.
Bandhan BankICICI Bank Ltd.Lakshmi Vilas Bank Ltd.
Catholic Syrian Bank Ltd.IDFC 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.

List of 44 RBI Approved Foreign Banks Which Offer You the Facility to Invest in Gold Bonds Offline.

Abu Dhabi Commercial Bank Ltd.Commonwealth Bank of AustraliaOman International Bank
American Express Banking CorporationCredit Agricole Corporate and Investment BankRabobank International
Antwerp Diamond Bank N.VCredit Suisse A.GSberbank
Arab Bangladesh Bank Ltd.(AB Bank)DBS Bank Ltd.Shinhan Bank
Australia and New Zealand Banking Group Ltd.Deutsche BankSociete Generale
Bank International IndonesiaDoha BankSonali Bank
Bank of AmericaFirst Rand Bank Ltd.Standard Chartered Bank
Bank of Bahrain & Kuwait B.S.CHongkong and Shanghai Banking Corporation Ltd.State Bank of Mauritius
Bank of CeylonIndustrial & Commercial Bank of ChinaSumitomo Mitsui Banking Corporation
Bank of Nova ScotiaJ.P.Morgan Chase Bank N.AThe Royal Bank of Scotland N.V
Bank of Tokyo – Mitsubishi Ltd.JSC – VTB BankUBS AG
Barclays BankKrung Thai BankUnited Overseas Bank Ltd.
BNP ParibasMashreqbankWestpac Banking Corporation
China Trust BankMizuho Corporate Bank Ltd.Woori Bank
Citibank N.ANational Australia Bank 

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

Firstly, you need to visit the bank branch or post office, fill an application form and collect the acknowledgement receipt. After the date of assurance, a certificate of holding will be issued which needs to be collected from the designated post office or bank branch. 

Online application:

You can buy Sovereign Gold Bonds online at most banks through net banking portal or your Demat account

Firstly, let’s take a look at the investing process in a sovereign gold bond through a net banking application.

  1. Log in to your net banking account and click on the sovereign gold bond option. Usually when the bond is open for subscription most banks display the bond details on the home page for convenience of the users. 
  2. You need to fill in your details like your name, address, PAN number and nomination. 
  3. Next, you need to enter the units you wish to buy. The amount of each bond is declared by RBI and is also mentioned on your net banking screen. As you are buying these gold bonds online you will also get a discount of Rs. 50 per gram
  4. After completing the transaction, you will receive your acknowledgement receipt via mail.

You can also invest in the sovereign gold bond through your Demat account. All you need to do is fill a similar application form and apply with the help of your broker. After successful application, the units of the bond will be credited into your Demat account. 

Can You Buy Sovereign Gold Bonds From The Secondary Markets?

Yes, you can easily buy units of sovereign gold bonds from the secondary markets. However, it is important to note that the trading volume of the bond in the secondary market is very low. Hence, because of low demand, the price of units usually trades at a discount as compared to market rates. 

For example, on 15th September 2021 according to the Indian bullion jewellers association, the price of 1 gram of gold was Rs. 4,837. On the other hand, the last traded price of 2.50%GOLDBONDS2027Sr-II was Rs. 4,750 on the National Stock Exchange. Thus sovereign gold bonds usually trade at a discount of 3-5% to their market value.

You can take advantage of the discounted rates and buy a few units of the bond. But it is beneficial only if you hold it till maturity. Because if you try to sell it on the stock exchange then you might have to sell it at a discounted price. 

Another important point to note is that sovereign gold bonds have low liquidity in the secondary markets. Few of these bonds don’t trade at all. So, it might be difficult for you to find a buyer. Hence, it is safe to transact in fewer units of the sovereign gold bonds in the secondary markets. 

Comparison Between Physical Gold and Sovereign Gold Bond Scheme

Physical GoldSovereign Gold Bond
ReturnsAs you have to spend more on making charges, the returns you earn on physical gold is usually lower. You earn higher returns than physical gold because you get an additional 2.5% interest every year.
Purity of GoldWhile buying physical gold you can opt for 22 carats or even 20 carat gold. You can buy units of the bond which are linked to pure 24-carat gold in electronic form.
Capital GainLong term capital gains are applicable if you sell it after 3 years.Long term capital gains are applicable after 3 years. But if the bond is held till maturity then no capital gain tax is levied. 
Collateral for LoanYesYes
TradabilityYou can sell it back to the jeweller.Tradable on the stock exchanges and redeemable after 5 years.
Locker charges HighNo locker charges

Tax Implication on Sovereign Gold Bond

  • If you hold the bond for 8 years, then the capital gains you earn are tax free. 
  • If you sell the bond after 5 years, then you will have to pay long-term capital gains (LTCG) at 20% with added cess and indexation.

For bonds listed on the stock exchanges:

If you sell a bond from the secondary market it is not considered as redemption. Instead, the ownership is transferred to the new buyer. So, if you sell a bond in the secondary markets before maturity then you need to pay capital gains tax. 

  • If you sell the bond in the secondary market within three years of purchase, then you have to pay short term capital gains (STCG) as per your tax slab.
  • If you sell the bond in the secondary market after three years of purchase, then you are eligible for long term capital gains of 20% with indexation and cess or 10% without indexation benefits. 
  • The 2.5% annual return you receive on the bond is added to your taxable income and is taxed according to your tax slab. 

Are Sovereign Gold Bonds Right for you?

Moreover, you can diversify your portfolio by investing a small corpus in sovereign gold bonds. This will balance the risk of your equity investments. You can also invest in gold bonds on behalf of your child. So that when they grow older, they can reap the benefits of the investment made by their parents. But, buying gold through your Demat account has multiple benefits such as discount on online purchase, safe storage and you can sell the units in the secondary market anytime you wish to. 

So, don’t wait for long. Open a Demat account before RBI announces the next tranche of sovereign gold bonds.  Samco’s Demat account provides you with quick and hassle free investing at your fingertips. Open a Demat account at Samco today!

FAQs on Sovereign Gold Bond

1. What is the maximum tenure of sovereign gold bonds?

Sovereign gold bonds mature after eight years. But, investors have an option to redeem the bond prematurely after the fifth year.

2. Can anyone from around the world invest in sovereign gold bonds?

Since they are issued by the Indian government only Indian residents, Hindu Undivided Families (HUFs), trusts, charities organisation and universities can invest in them.

3. What is the minimum and maximum limit of investing in the Sovereign gold bond?

Minimum Investment Maximum Investment
Individuals1 gram4 kg
Hindu Undivided Family (HUF)1 gram4 kg
Trusts and charitable organisations1 gram20 kg

4. How will the redemption process take place?

Upon maturity, the gold bond will be redeemed according to the average closing price three days of gold prior to the date of maturity. Later, the amount will be credited into your bank account.

5. If I wish to apply offline, do I have to pay in cash or cheque?

You can make a payment up to Rs 20,000 in cash. Apart from cash, cheques and demand drafts are also accepted.

By Clarice Mendonsa

The author has done a Bachelors in Banking and Insurance (BBI). She is a budding financial content writer. Her strength lies in simplifying financial jargons. Her goal is to help readers make better investment decisions.

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