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Sovereign gold bonds or SBGs are gold bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Here’s how to buy them.
The gold in this bond is sold on a per unit basis such that every unit derives its value from underlying one gram gold with 999 purity. The cost is calculated by taking an average of closing prices of gold for the latest three working days preceding the subscription period. These closing prices are published by the India Bullion and Jewellers Association Limited (IBJAL). The redemption price is also calculated on the latest base data from the same source.
How SGBs Work
SGBs are issued by the RBI in different tranches during the financial year. These securities are made available via banks, brokers, post offices and online platforms. A discount of INR 50 per gram is offered to investors who purchase them digitally to promote buying SGBs online.
It is important to note that the RBI brings new series of SGBs for sale in the market throughout the year. So, if you miss the last one announced, you can always wait for the next issue to be announced.
Investors can either buy the bonds in physical, digital or dematerialized format. Once purchased physically, investors can get these bonds credited to their demat accounts by making a specific request for it. RBI then processes the dematerialization at their end and until when, the bonds are held in RBI’s books.
Dematerialization can also be done post allotment. Investors who are not buying directly from the RBI, can buy the units from the secondary market i.e., from stock exchanges.
How To Buy Sovereign Gold Bonds Online
SGBs can be bought online via some commercial banks’ websites. The following are the common steps you can follow while buying bonds online.
Step 1: Login into the preferred bank’s internet banking account.
Step 2: Click on the “e-service” option and then choose the “Sovereign Gold Bond” option.
Step 3: Read attentively the “terms and conditions” put down by RBI and “Proceed”.
Step 4: Complete the registration form and select “Submit”.
Step 5: In the purchase form put the quantity of subscription and the nominee details.
Step 6: Now, after verifying the details click on the “Submit” option.
Advantages Of Buying SGBs
The SGBs are a great alternative to purchasing physical gold. The following are some benefits that investors should know about before buying.
- The bonds are super safe and involve no risk of handling physical gold.
- Investors can earn an assured 2.50% interest rate on the issued price per annum.
- There is no applicable tax deducted at source on SGBs.
- The SGBs price is linked to the gold price of 999 purity.
- The bonds can be used as collateral for applying for a loan.
- The bond’s tenure is for eight years but has the flexibility of redemption after five years with a sovereign guarantee on the redeemed amount and interest.
Risks Involved In Buying SGBs
There is a risk of loss if the market price of gold falls below its cost price. This is not a specific risk with the SGB form of gold investment but is also applicable to the general form of investment.
However, the RBI assures that the investor will never lose in terms of the quantity of gold that was allotted to them.
Bottom Line
SGBs are easy to buy and handle with a term of eight years and an interest rate of 2.50% per annum paid on a half-yearly basis. Every individual purchase is restricted to a maximum of 4 kgs per financial year and in case of a trust, it is restricted to 20 kgs. The only document mandatory for the purchase of SGBs is a PAN card without which no investment in these bonds is permitted.
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Mahendra LuniyaContributor
Mahendra Luniya is the Chairman of Vighnaharta Gold Limited. He has over 20 years of experience in investing in the stock market and is an expert in digital gold.
Aashika JainEditor
Aashika is the India Editor for Forbes Advisor. Her 15-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.
