RBI Sovereign Gold Bonds (SGB) is a substitute for investing in Physical Gold, Sovereign Gold Bonds are government-backed instruments that makes them safe for investment and there is no possibility of default in this scheme, stay till the end to consume the best knowledge related to the SGBs so that you can also invest in SGBs and generate good returns on your hard earned money.
What is RBI Sovereign Gold Bonds
Sovereign Gold Bonds are issued by the RBI on behalf of the Government of India, it was first issued in November 2015.
To be more clear about Sovereign Gold Bonds you must first understand the meaning of bonds, Bonds are debt instruments that a borrower issues to the lender against borrowing money, it is a certificate that includes all the important information about the loan like the amount, issue date, maturity date, interest rate, type of bond, etc.
A Bond works as proof that the money is given on a loan, and at the time of maturity it will be redeemed at a determined face value, but till maturity, the borrower pays interest to the lender.
Similarly, Sovereign Gold Bonds (SGB) are also debt instruments through which the Government of India borrows money from the public, investing in a Sovereign Gold Bond is similar to investing in 24k Physical Gold, as returns on both are approximately the same but SGBs give out an additional 2.5% P.a. interest on the invested amount.
You can invest in SGBs either online or offline, but the best way to invest in SGB is through online mode as you can get a discount of 50 rupees per bond if you buy it online.
SGB comes with a maturity period of 8 years but you can still sell it anytime in the secondary market before maturity, at the time of maturity SGB that you are holding will automatically be sold and you will receive money according to the average current value of 24k gold directly into your bank account.
You will receive interest on SGB directly into your given bank account half-yearly i.e. every 6 months till maturity.
Example: If the issue price of Sovereign Gold Bond is 6100 rupees, the interest rate is 2.5% P.a. on SGB and you have purchased 1 bond (1 gram).
6100 * 2.5% = 152.5 rupees (152.5 / 2 =76.25)
So, you will receive 76.25 rupees every 6 months from SGB as interest, till maturity.
Sovereign Gold Bonds are government securities and money raised by the government through government securities are used to finance day-to-day operations of the government, funding for military projects, and building infrastructure.
How to invest in RBI Sovereign Gold Bonds?
Sovereign Gold Bonds can be bought both online as well as offline.
You can buy RBI sovereign gold bonds through designated post offices, public and private sector banks, NSE & BSE, and Stock Holding Corporations of India Limited (SHCIL).
The best method for buying RBI Sovereign Gold Bonds is online. You can buy SGBs online through net banking or your D-mat account.
You will also get a discount of Rupees 50 if you buy SGB online.
Buying Sovereign Gold Bonds through your D-mat account is a better option as you can sell it anytime before maturity in just a few clicks if you wish. Now you have to choose a SEBI-registered and trusted brokerage firm where to buy Sovereign Gold Bonds. According to us Groww and Zerodha both the brokerage firms are best for investing in SGBs.
Let me explain to you how you can buy RBI Sovereign Gold Bonds (freshly issued) using Groww
- Log-in to your Groww D-mat account, but if you don’t have a D-mat account then click here (Link) to open your D-mat account.
(Note: D-mat account opening is 100% free on Groww)
- Then, open the Groww interface, you will see the option of SGB, click on it.
But you will only see the option of SGB when they are open for bidding, next SGB will open on 11 September 2023 and will close on 15 September 2023.
- Now place the bid for desired quantity of SGBs, allotment will be made within 7 days after bidding is closed, if you get the allotment then your SGB will appear in the holding section of your D-mat account and you will receive interest on SGB directly into your bank account which is linked with your D-mat account.
Who can Invest in SGBs?
An Indian resident individual, Hindu Undivided Family (HUF), Trusts, Universities, and Charitable institutions can invest in the RBI Sovereign Gold Bond Scheme.
Note: Minimum investment in SGB is 1 gram and maximum investment in SGB is 4 kg for Individuals and HUF, and 20 kg for Trusts, Universities, and Charitable institutions.
How is the Sovereign Gold bond price fixed?
The Price of RBI Sovereign Gold Bonds is based on the simple average of the closing price of 24k gold of the last three working days of the week preceding the subscription period, but note that the price of 24k gold published by the India Bullion and Jewellers Association Ltd (IBJA) is only considered for fixing the price of RBI Sovereign Gold Bonds.
The last Sovereign Gold Bond scheme was open for subscription on 19 June 2023 and closed on 23 June 2023 and the issue price set was 5926 rupees per gram (per bond). So, here preceding last week 3 working days were 14, 15, and 16 June (the last SGB price was fixed taking the average of the value of 24k gold for these 3 days)
Benefits of SGB
- You will save money on the storage of Gold.
- It is a safe and risk-free investment tool as it is issued by RBI.
- You will get an additional 2.5% (P.a) interest on investing in SGB.
- If you stay invested more than 5 years then you don’t even have to pay Long Term Capital Gain tax on SGB.
- You don’t have to pay any making charges.
Limitations of SGB
- Interest is paid on the initial investment amount, not on the current value of the bond.
- The Problem in selling Sovereign Gold Bonds in the secondary market because of low liquidity.
- Private Limited companies (Pvt. Ltd.), NRI (Non-resident India), and firms can’t invest in Sovereign Gold Bonds.
- It has a very long maturity i.e. 8 years.
- There is no guaranteed return on Sovereign Gold Bond, it depends upon the current market price of the gold at the time of sale.
Comparing SGB vs Physical Gold
Sovereign Gold Bond | Physical Gold |
There is no risk of theft in the case of Sovereign Gold Bonds. | There is a risk of theft if you have physical gold. |
You don’t have to bear any cost in case of storing SGBs | Cost of storing physical gold |
No risk of adulteration | Risk of adulteration |
You don’t have to pay any making charges | You have to pay making charges |
Sovereign Gold Bonds are tax-free if you hold them for a minimum 5 years. | You have to pay capital gain tax at the time of selling physical gold. |
On comparing both it is very clear that Sovereign Gold Bonds are a better investment option than investing in Physical Gold.
Taxation on the gain from SGBs
- You don’t have to pay Long Term Capital Gain Tax on Sovereign Gold Bonds if you hold them for a minimum of 5 years.
- If you sell your SGBs after 3 years but before 5 years then you have to pay Long Term Capital Gain Tax on the gain you have made, which is 10% without indexation benefit or 20% with indexation benefit
- In the case of SGBs, Short term Capital Gain is applicable if you sell your SGBs before 3 years, then the gain made within the period will be added to your income in the year you have sold it, then you have to pay tax according to your income tax slab.
- Interest earned from Sovereign Gold Bonds is treated as income from other sources and will be taxed as per individual’s tax slab and there is no TDS deducted on investing in Sovereign Gold Bonds.
Conclusion
In this article we have provided all the important information related to the RBI Sovereign Gold Bonds Scheme, we have covered the meaning of SGB, How to invest in SGBs, Who can invest in SGBs, How the price of per bond is fixed, Benefits of SGB, Limitations of SGB, Comparison of SGB with Physical Gold, and Taxation on SGBs. The content provided above is enough for you to start investing in SGBs, hope you like the above content. Check out our FAQs section before leaving, it will help you to clear all your remaining doubts.
FAQs section
Q1. Is investing in SGBs safe?
A1: Yes, investing in SGBs is very safe as it is issued by the Reserve Bank of India on behalf of the Central Government.
Q2. Is SGB better than digital gold?
A2: SGB is a better investment option if we compare it to digital gold because SGBs are backed by the Central Government, SGBs offer interest, and also gain on SGBs are exempt from capital gain tax if you hold them for a minimum of 5 years.
Q3. When will the next series of SGBs open for subscription?
A3: The Series 2 of SGB will be open for subscription from 11 September 2023 till 15 September 2023 and will be issued on 20 September 2023.
Q4. What is the coupon rate on SGBs?
A4: Coupon rate means interest rate, 2.5% (P.a.) interest is paid on SGB which is paid half yearly.
Q5. What is the maturity period of SGBs?
A5: SGB comes with a maturity period of 8 years but investors can sell it before the maturity if they wish.
Q6. Who should invest in SGBs?
A6: SGB is a good investment option for any individual who is willing to invest for a long term, first SGB was issued in the year 2015 and matured in the year 2023 which has given the return to its investors of approx 100%.
Q7. Can SGBs be sold before maturity?
A7: Yes, you can sell your SGBs before even completing their maturity, in the secondary market.
Q8. Is there any TDS deducted on purchasing of SGBs?
A8: No, there is no TDS deducted in case of buying SGB.
Q9. Who can not invest in the RBI Sovereign Gold Bonds scheme?
A9: Pvt. Ltd. companies, firms, and NRIs cannot invest in the RBI Sovereign Gold Bond scheme.
Q10. How to sell SGBs before maturity?
A10: You can sell your SGBs before maturity in the secondary market.
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