Understanding the Sovereign Gold Bond Scheme

What are Sovereign Gold Bonds?

Sovereign gold bonds were introduced by the Government of India in 2015 under the Gold Monetization Scheme. The gold bonds are issued every month from October 2019 to March 2020. Under this scheme, the issues are offered in tranches by the Reserve Bank of India in consultation with the Government of India.

The bonds will be denominated in the multiples of a gram of gold with the minimum unit of 1 gram. The interest for the gold bonds will be 2.50% per annum which is payable semi-annually on the nominal value. The tenure of the bond will be for a period of 8 years with an exit option available in the 5th, 6th and 7th year on the dates of interest payment. The maximum limit of gold which can be subscribed by an individual is 4 kg for, 4 kg for a Hindu-Undivided Family and 20 kg for trusts and other similar entities. If the gold bonds are co-owned, the limit of investment will be 4kg which will be applied to the first applicant only.

The gold bonds will be issued as stocks under the Government Security Act, 2006. The investors will also be given a Holding Certificate for the same.

Why should you invest in Gold Bonds?

There are several advantages to investing in gold bonds. The gold bonds are restricted for sale to Indian residents including individuals, Hindu Undivided Families, Trusts, Universities and Charitable Institutions.

Some of the advantages of investing in gold bonds are:

  • These bonds can also be used as collateral for loans.
  • The payment for the bonds can be made with cash up to a maximum of Rs.20,000 or demand draft, cheque or through e-banking.
  • These bonds are eligible to be converted into DEMAT form.
  • Gold bonds are a form of security as they are issued in the form of the Government of India stock.
  • The gold bonds which you invest in will be not subjected to tax. The tax benefit is given to the interest you will receive from the investment.

How to invest in Sovereign Gold Bonds?

As mentioned before, the issues of gold bonds are made open for subscription in tranches by the Reserve Bank of India after consulting with the government.

The tranche for the 2019-2020 series subscription is as follows:

Tranche Date of Subscription Date of Issuance of Bonds
2019 – 2020 Series I June 03 – 07, 2019 11 June 2019
2019 – 2020 Series II July 08 – 12, 2019 16 July 2019
2019 – 2020 Series III August 05 – 09, 2019 14 August 2019
2019 – 2020 Series IV September 09 – 13, 2019 17 September 2019

To invest in gold bonds, you can fill in the application form which is provided by issuing banks or from designated post offices. You can also download the application form from the website of the Reserve Bank of India. Many banks such as the State Bank of India and Kotak Mahindra Bank offer the provision of applying for bonds online.

Every applicant must provide their PAN number issued by the Income Tax Department. Without a PAN, one cannot apply for investing in gold bonds.

The gold bonds are sold through the offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, Designated Post Offices, and the Stock Holding Corporation of India.

There is a certain eligibility criterion that must be met to be allotted gold bonds. Applying for it does not ensure that you will be given the bond. You can apply for the gold bonds online on the websites of the listed commercial banks. The issue price of the gold bonds will be Rs.50 per gram less than the nominal value for those investors applying online.

Eligibility for Sovereign Gold Bond Scheme

Individuals who are keen to participate in the Sovereign Gold Bond Scheme need to satisfy the following simple eligibility criteria.

  • Indian resident – This scheme is open only to Indian residents, with the Foreign Exchange Management Act of 1999 formulating the eligibility criteria.
  • Individuals/groups – Individuals, associations, trusts, HUFs, etc. are all eligible to invest in this scheme, provided they are Indian residents. Under the scheme, one can jointly invest in bonds with other eligible members.
  • Minors – This bond can be purchased by guardians or parents on behalf of minors.

Features and Benefits of Sovereign Gold Bond Scheme

Some of the unique features and benefits of this scheme are mentioned below.
  • Gold denomination – These bonds will be issued in multiple weight denominations, starting from 1 gram onwards, providing flexibility in terms of purchasing gold which suits the needs of an individual.
  • Format – One has an option to hold these bonds either in paper or demat form, whichever is convenient to an individual.
  • Flexibility – Investments in this scheme are flexible, with one having an option to choose the amount he/she wishes to invest.
  • Interest – Investments in this scheme are eligible to earn interest every year.
  • Safety – There is no need for storage or safety of gold under this scheme, as the gold isn’t physically given to an investor immediately.
  • Purity – Since it is backed by the government, one is assured of purity of gold when they invest in the scheme.
  • Maturity – This scheme has a maturity period of 8 years.
  • Gift/transfer – Investors can choose to gift or transfer these bonds to others, provided they meet the necessary eligibility criteria.
  • Premature withdrawal – Premature encashment of these bonds is allowed after 5 years of issue.
  • Loan collateral – Investors can use these bonds as collateral against loans.
  • Application – The application process is simple and fast, with banks and post offices permitted to provide this service.
  • Payment modes – One can opt to purchase these bonds through multiple payment modes, with cheques, cash, DDs or electronic transfer accepted.
  • Nomination – This scheme has a provision for nomination, adhering to the rules of the land.
  • Tradable – Investors can trade these bonds on stock exchanges, subject to notifications of the Reserve Bank of India.

Sovereign Gold Bond Scheme Interest rate

The government has fixed an interest rate on this scheme, with all investors eligible to earn an interest on their investment. The current interest rate stands at 2.75% per annum, with this interest paid every six months. This interest rate can be changed by the government as per its policies.

Risk associated with Sovereign Gold Bonds

Gold, is traditionally a very safe investment, and typically the risk associated with Sovereign gold bonds is very low. However, given the fact that gold rates depend on market performance, any drop in gold rates could put the capital at risk, which would be the case even if one owned physical gold. Regardless of market rates, an investor should take solace in the fact that the amount of gold he purchased doesn’t change.

KYC Documents required

The following KYC documents are required to invest in Sovereign Gold Bonds:

  • Proof of identity (Aadhaar card/PAN or TAN /Passport / Voter ID card)
  • KYC process will be carried on by bond issuing banks, agents or post offices.

Maximum /minimum amount of investments under Sovereign Gold Bond Scheme

Sovereign Gold Bonds are issued in denominations of 1 gram of gold and multiples of it. The gold scheme accepts a minimum investment of 2 gm and a maximum investment of 500 gm form a single person in a fiscal year.

FAQs:

  1. Where do I get the application for SGB?

    The application form for SGB will be available AT issuing post offices and scheduled commercial banks. It can also be downloaded form the official website of Reserve Bank of India.

  2. Is a minor eligible for investing in SGB?

    Yes, minors are also eligible for investing in SGB under the supervision of guardian/parents.

  3. Is there any risk involved in investing in SGB?

    Yes, there might be a risk of capital loss when the market rate of gold goes down. But, it does not affect an investor's units of gold for which he/she has paid.

  4. Can I apply for SGBs online?

    Yes, you can apply for these bonds online by visiting the official website of designated commercial banks issuing these bonds.

  5. Can I take a loan against Sovereign Gold Bonds?

    Yes, you can take a loan by using these bonds as securities. These bonds can be used as collaterals at banks, financial Institutions and other non-banking financial companies.

  6. Is tax deducted at source (TDS) for investing in SGBs?

    No. Tax is not deducted at source.

  7. How do I pay for these bonds?

    There a number of payment options available to pay for these bonds. You can pay via demand draft/electronic fund transfer/ cash or cheques.

  8. Is it possible to invest in Sovereign Gold Bonds in DEMAT account?

    Yes, you can keep these bonds in DEMAT account.

  9. Can Sovereign Gold Bonds be traded?

    Yes, Sovereign Gold Bonds are tradable on stock exchanges as per the RBI notification.

  10. Can I sell or transfer Sovereign Gold Bonds purchased by me?

    Yes, you can sell or transfer your bonds as per provisions of the Government Securities Act.

  11. Can I purchase bonds worth 500gm every year?

    Yes, you can purchase 500 gm worth of gold every year under the Sovereign Gold Bond Scheme.

  12. Is nomination facility is available for SGBs?

    Yes, nomination facility is available for SGBs. A nomination form is attached with the application form.

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News About Sovereign Gold Bond Scheme

  • Sovereign Gold Bonds (SGBs) priced at Rs.2,934 per gram

    Sovereign Gold Bonds open for purchase from Monday has been priced at Rs.2,934 per gram. A discount of Rs.50 per gram has been offered to investors applying online and making digital payments.The previous tranche under the present schedule closed on the 11th of October. The current tranche is spread over 12 weeks and valid until the December. The SGBs can be purchased from Monday to Wednesday every week until the 27th of December.

    04 November 2017

  • Sovereign Gold Bonds being issued

    The first share of the SGB or Sovereign Gold Bonds scheme in the current fiscal will open for public subscription on the 26th of April. A statement released by the Finance Ministry last week said that all applications for Series I of the Sovereign Gold Bonds 2017-18 would be accepted between the 24th of April to 28th of April and bonds would be issued on the 12th of May.

    The statement also said that the issuing price of the gold bonds would be Rs.50 per gram below the nominal value. On friday, the issue price was announced by Reserve Bank of India as being Rs.2,901 per gram.

    24 April 2017

  • Sovereign Gold Bond Scheme Exceeds Expectations, Additional Tranches Planned

    With the positive response given to the Sovereign Gold Bond schemes launched in November 2015, the government has planned to roll out more such tranches in the current fiscal year 2016-17.

    The response to the latest tranche, which ran from July 18th- 22nd, stands at close to 1.95 lakh. The revenue accrued by the government through the scheme stands at Rs.919 crore, with the figure set to rise as details of the latest tranche are yet to come in.

    Collection centres across the country are still processing the applications due to the tremendous response received, and this has galvanised the government into announcing additional tranches in the near future.

    The current tranche (July 18th-22nd) saw gold priced at Rs.3,119 per gram, with the minimum purchase being 1 gram. Capital gains tax on redemption of the bonds was exempted, and the bonds were issued in demat form. This led to the huge response compared to the previous tranche, where minimum purchase was at 2 grams of gold.

    2 August 2016

  • Government sets Rs.3,119 per gram as rate for Gold Bond scheme

    Government has finally set the price for the 4th Tranche for Sovereign Gold Bond Schemes that opens for subscription today. The government has reduced the minimum subscription denomination to 1 gm in the 4th tranche that will be open for investment for institutional and individual investors . The minimum subscription has been reduced to 1 gram in order to attract small time investors. The Sovereign Gold Bonds can now be purchased from NSE and BSE along with bank branches and post offices.

    21 July 2016

  • Ministry of Finance launches the Fourth Tranche of Sovereign Gold Bonds

    The Ministry of Finance just launched the Fourth Tranche of Sovereign Gold Bonds. The Gold Bonds will be available for investment by resident and institutional investors from 18th to 22nd of July, 2016. The Fourth Tranche of SGB scheme marks the first series in the year of 2016-2017. The issue price of the gold bonds have been set at Rs.3,119 per gram based on the average of last week's price of physical gold. SGB was introduced with the aim of reducing demand for physical gold and diverting savings into financial instruments.

    20 July 2016

  • Sovereign Gold Scheme Effective Investment Option

    The fourth tranche of Sovereign Gold Bond was launched by the government and will remain open until 22nd July. The price this time has been decided at Rs.3,119 per gram and minimum subscription has been reduced from two grams to one gram. The maximum that an institution or an individual can invest up to is 500 grams and rate of interest is fixed at 2.75% which is payable every six months.

    These bonds can be purchased from BSE and NSE apart from certain post offices and bank branches and the Stock Holding Corporation of India Limited. Tenure applicable is 8 years with options for individuals to exit at 5th, 6th and 7th year, bonds are issued in denominations of 1, 2, 5, 10, 50 and 100 grams.

    20 July 2016

  • Sovereign Gold Bonds Commence Trading, Gains more than 7%

    Sovereign gold bonds started trading on the stock exchanges and finished the very first day with remarkable gains in excess of 7%. The price of the bonds per gram was Rs.2,930 at the start of trading, and Rs.3,147.75 per gram while closing, marking an increase of 7.43% from the National Stock Exchange’s opening price. The highest price recorded by the bonds during the day was Rs.3,258 per gram, marking an increase of 10.38%. The turnover at both BSE and NSE was recorded at Rs.23.18 lacs. The main reason as to why sovereign gold bonds are recording such impressive figures is due to the fact that they offer investors an option of diversifying their portfolio without having to purchase the metal in physical form.

    14 June 2016

  • Sovereign Gold Bond Eligible for Trading

    On Monday, the Reserve Bank of India said that Sovereign gold bonds could be used to trade stock exchanges. This scheme was announced by the government in 2015. As of now, three tranches of these bonds have been provided and BSE has commenced mock trading of these securities. Fourth tranche is being expected.

    Bonds will come with a fixed interest rate of 2.75 % per year on the initial amount invested.

    Interest will be paid half yearly and the final interest will be provided on maturity along with the principal amount. This scheme was introduced as an alternative to buying gold physically and the tenure is 8 years with a 5th year exit option.

    9 June 2016

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