EXPLAINED | Your complete guide to Sovereign Gold Bond (SGB) scheme; when will the next series be available?

The Sovereign Gold Bond (SGB) is a government-backed scheme that allows investors to earn a market-linked return on the precious metal as well as interest at the rate of 2.5 per cent. Denominated in grams of gold — one unit of the bond is worth the value of one gram of gold, sovereign gold bonds are issued by the RBI on behalf of Government of India. Financial planners say the gold bonds make a lucrative avenue of investing in the precious metal owing to the dual benefit of the market price-linked return and the interest (over and above the return). Sovereign gold bonds come with a maturity period of eight years with an option of premature withdrawal after the first five years under certain conditions. 

Here are anwers to some of the commonly asked questions about the Sovereign Gold Bond scheme, as listed by the RBI: 

Why should you buy SGB instead of physical gold?

Here are some of the key features of sovereign gold bonds: 

• No risk of storage
• No cost of storage
• Assured return on maturity
• Periodical interest
• No making charges
• No risk of impurity
• Bonds are held in RBI books in demat form; no risk 

Is there any risk in investing in the Sovereign Gold Bond scheme?

There may be a risk of capital loss if the market price of gold declines, though the investor still holds the same amount in terms of the units of gold paid for, according to the RBI. In other words, in case gold prices fall after you purchase the SGBs, though the value of the bonds falls proportionately, one can redeem the same number of bonds in futures when rates recover.

Who can invest in sovereign gold bonds?

Investors eligible to buy sovereign gold bonds include individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions, besides individuals residing in India as defined under the Foreign Exchange Management Act. Additionally, those with a subsequent change in their residential status from resident to non-resident may continue to hold already bought sovereign gold bonds till maturity or premature withdrawal.

Is there any investment limit applicable to sovereign gold bonds?

Individuals can buy up 4,000 units, equivalent to the value of 4 kg of gold, in a financial year. The same limit is applicable to HUFs as well. Trusts and similar entities can acquire up to 20,000 units (20 kg).

The minimum permissible investment is one gram of gold, for all kinds of investors, for SGBs subscribed under different tranches and those purchased from the secondary market.

Can you buy sovereign gold bonds jointly and can you buy in the name of a minor?

Yes.

In case of joint holding, the investment limit of 4 kg is applicable to the first applicant only. The bonds are issued as Government of India Stock under the Government Securities Act, 2006, and are eligible for conversion into demat form.

Can each family member buy sovereign gold bonds?

Yes.

What is the interest rate applicable to SGBs?

Sovereign gold bonds bear interest at the rate of 2.5 per cent per annum.

How frequently is the interest on sovereign gold bonds paid?

The interest is credited to the bondholders' accounts on a semi-annual basis.

Where to buy sovereign gold bonds from?

Nationalised banks, private banks, foreign banks, designated post offices, the Stock Holding Corporation and the authorised stock exchanges can offer sovereign gold bonds, either directly or through agents.

Do all applicants get the allotment of sovereign gold bonds?

Customers meeting the eligibility criteria, producing a valid identification document and remitting the application money on time will receive the allotment.

Can sovereign gold bonds be purchased online?

Yes.

Is there a discount on sovereign gold bonds?

A discount of Rs 50 on the issue price is available to those applying through digital mode.

What are the bidding hours for sovereign gold bonds?

Just like IPOs, sovereign gold bonds are available for bidding from 10 am to 5 pm on applicable days. 

What are the various modes of payment allowed for investing in the gold bonds?

Payments can be made through cash (up to a maximum of Rs 20,000), demand draft, cheque or electronic banking.

When will the next tranche of gold bonds be available? When can you invest in SGBs next?

A second series of the Sovereign Gold Bond scheme for the financial year 2023-24 will be open for subscription from September 11 to September 15, 2023. The bonds will be issued on September 20, 2023, according to an official release.

The first series was open for subscription from June 19 to June 23, 2023, and issued on June 27, 2023. 

How are the sovereign gold bonds priced?

The price of SGBs is fixed in rupees on the basis of a  simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association (IBJA), for the last three working days of the week preceding the subscription period.

Can you apply for a loan on the basis of your sovereign gold bond holding? 

Yes, SGBs can be used as collateral for loans, with the loan-to-value (LTV) ratio as applicable to any ordinary gold loan mandated by the RBI from time to time.

What are the tax implications of investing in sovereign gold bonds?

Interest on SGBs is taxable as per the provisions of the Income Tax Act, 1961. However, the capital gains tax arising on the redemption of SGB to an individual is exempted, and indexation benefits will be provided to long term capital gains arising to any person on the transfer of the SGB.

SGBs vs other investments

When compared with government bonds and fixed deposits, SGBs offer a guaranteed return rate of 2.5 per cent annually on the initial investment. Unlike fixed deposits, which come with a certain lock-in period, SGBs and government bonds provide high liquidity and can be traded in the secondary market.

Despite the RBI reducing the number of SGB issues for the fiscal year 2023-24 to just two series, the potential for a long-term investment coupled with the security of a guaranteed return makes this scheme a lucrative option for investors. So, keep a lookout for the next SGB series coming in September to grab your share of this golden opportunity, say financial planners.

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