Is Demat Account Necessary for Sovereign Gold Bond (2024)

FAQs

Is Demat Account Necessary for Sovereign Gold Bond? ›

To invest in sovereign bonds, you do not need a demat account. Customers who do not have a demat account will receive both physical and electronic certificates.

Do I need a demat account to apply for Sovereign Gold Bonds (SGB)? Yes, you need a demat account to apply for SGBs. SGBs are similar to Stocks. Your SGB holdings will be a part of your Demat account.

One of the best techniques to get openness to gold is to purchase a sovereign gold bond (SGB). Without opening a Demat account, you can purchase sovereign gold bonds online through your savings account's net banking stage or mobile banking.

Retail investors can trade these bonds on the stock exchange without the facilitation of a third party or a stockbroker. However, investors are required to have a Demat account to keep these bonds.

Non-Resident Indians cannot invest in Sovereign Gold Bonds (SGB). While, individual investors may keep SGB until early redemption or maturity even after changing their residential status from resident to non-resident.

You can earn a good interest rate by investing in SBI gold bonds. The bond provides investment in gold against investment in physical gold which can be damaged or become impure over time. Gold bonds do not charge extra fees. You can avail of a loan against a gold bond.

What happens when I invest for 8 years in a sovereign gold bond? After 8 years, the SGBs mature, and the interest and redemption proceeds will be credited to the bank account. You will be informed about its maturity status one month before the maturity date.

Benefits of SGB

Gold bonds can be held in demat form or as certificates issued by the RBI and both are a lot simpler than holding physical gold. Above all, if you are a long term investor, then holding sovereign gold bonds for the full tenure of 8 years gives you tax free capital gains.

Can a US citizen open a Demat account in India? ›

Non-resident Indians

Yes, NRIs can also trade in Indian capital markets by opening a Demat Account with a DP or depository participant of their choice.

It is important to know that a Demat Account is only mandatory for investing in stocks and no other security. However, while you do not need the account to buy Mutual Funds, it can help to have one nevertheless.

A demat account is needed to hold the securities (shares, bonds, mutual funds, etc.) in an electronic format. A demat account is a prerequisite for equity delivery trading in India. A demat account is also needed while applying for IPO (initial public offering) as the allotted shares get credited to the demat account.

In summary, while Sovereign Gold Bonds offer many advantages such as ease of investment, safety, and steady returns, there are also some potential drawbacks such as limited liquidity, fixed interest rates, and long-term nature of investment.

While ETFs are backed by high-quality physical gold, there are risks related to the AMC managing that ETF. Sovereign gold bonds are issued by the RBI and backed by the government of India, which makes them less risky. In Gold ETFs, only return is appreciation in Gold Price.

Sovereign Gold Bond Interest Rate

The government pays 2.5 per cent interest yearly on the amount invested till maturity. The default maturity period of SGCs is 8 years. The government, however, allows investors to exit after 5 years subject to certain conditions.

Can NRI invest? Non-Resident Indians cannot invest in Sovereign Gold Bonds (SGB). While, individual investors may keep SGB until early redemption or maturity even after changing their residential status from resident to non-resident.

The weight of gold being imported into the country should not exceed 1Kg per passenger, which is about 2.2 pounds. The said passenger must be a Person of Indian origin OR person holding valid passport under the Passport Act, 1967. Imported gold can be in the form of bars, coins or jewellery.

Thus, if you buy gold jewellery in cash for an amount exceeding Rs 2 lakh in a single day, then you will be violating the income tax law. The receiver of the cash in such a transaction would become liable to pay a penalty of the amount transacted in cash as per Section 271D of the Income Tax Act.

Is SGB a good investment? ›

SGBs are considered a superior alternative to holding physical gold as they allow investors to earn from the appreciation in the gold price while also paying a fixed interest rate of 2.5% per annum payable semi-annually on the nominal value.

If investors hold the bonds to maturity, they are redeemed at the redemption price, which is based on the simple average of the closing price of gold of 999 purity of the previous three business days from the repayment date published by the India Bullion and Jewellers Association Limited.

Sovereign Gold Bonds: SGB investments have returned an average 13.7% over last 8 years.

Sovereign Gold Bonds (SGBs) are denominated in grams and are RBI-issued government securities. These cannot act as a replacement for physical gold.

Sovereign Gold Bond Scheme Taxation

Hence, For someone in the 10%, 20%, or 30% tax bracket, the post-tax return comes to 2.25%, 2% and 1.75% respectively. This income you have to show under the head of “Income from Other Sources” and have to pay the tax accordingly (exactly like your Bank FDs).

They can only be transferred through a value-free transfer. An investor has to submit a rematerialisation request for the debit of SGBs to the transferor DP and submit a dematerialisation request to credit SGBs to the transferee DP.

If, at any given time, you wish to calculate the value of your SGB gold bonds, you need to simply follow the method the RBI uses to determine the issue price. It can be calculated as the simple average of the closing price of 999 purity gold for the last three business days of the week.

Physical SGBs bought through a bank or other financial intermediary can be converted to a demat form by submitting the dematerialisation request to the issuer banker or financial intermediary. The bank or intermediary will upload the data to the e-Kuber portal of RBI to process the request.

Unlike physical gold, SGBs are a safe investment option as it is dematerialised and, it is devoid of risks of loss involved in hazards of safekeeping or storing of gold, issues around making charges of jewellery and purity of gold purchased.

Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

What will happen to my demat account if I move abroad? ›

As per the regulations set forth by the Foreign Exchange Management Act or FEMA, if you move out of India, you cannot have any resident accounts. Whether you shift due to employment or further education, the rules still apply. In such cases, your demat account status must change to that of NRO.

So, the Demat Account status after the residency change will be different. Banks require you to close your Resident Demat Account and open a new NRO Demat Account or a Non-Resident External Demat Account under the Portfolio Investment Scheme (PIS).

For a Non-Resident Indian NRI to trade in secondary markets, they can operate a demat account only post seeking Portfolio Investment Scheme (PIS) licences from designated banks to make investments in India. As per the Reserve Bank of India (RBI), an NRI can only hold up to 5% of paid-up capital in an Indian company.

Physical SGBs bought through a bank or other financial intermediary can be converted to a demat form by submitting the dematerialisation request to the issuer banker or financial intermediary. The bank or intermediary will upload the data to the e-Kuber portal of RBI to process the request.

Sovereign Gold Bond (SGB) is a non-physical way to invest in gold. Investors can hold gold bonds in demat, physical or e-certifcate format.

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.