What are Sovereign Gold Bonds?
Sovereign Gold bonds substitutes for holding physical gold. These bonds are digital gold, meaning they do not require any physical lockers to store them. It is today the safest way to both buy, as well as store gold. Bonds are issued by the Government of India, and therefore, they are also the safest way to hold the gold. Sovereign Gold bonds assures you with an interest of 2.75 percent per annum. If you pay for these bonds in cash, you can redeem it in cash as well upon maturity.
Is there a risk in investing in Sovereign Gold Bonds?
The only risk of investing in Sovereign Gold Bonds is you will incur capital loss if there is a decline in the market price of gold. However, as an investor, you will not lose in terms of the units of gold that you have paid for.
Why should you invest in Sovereign Gold Bonds?
There are many advantages of wanting to invest in Sovereign Gold bonds.
- In the present context, it is the safest investment option because you can buy and store your gold without having to place it in any physical locker. This is called “digital gold”.
- This investment comes with an assured interest of 2.75 percent per annum.
- Additionally, this is an asset appreciation opportunity and not asset depreciation.
- Sovereign Gold bonds are issued by the Government of India and are tradable on Stock Exchange.
- There is no TDS that is applicable on these bonds.
- Sovereign Gold bonds can be used as a collateral on your loans.
- You can invest in Sovereign Gold bonds with complete ease using HDFC Netbanking.
Who is authorized to sell Sovereign Gold Bonds?
Designated Post Offices and scheduled commercial banks are authorized to sell Sovereign Gold Bonds. They can either sell them directly or by using their agencies such as NSC, NBFC etc. HDFC bank is one of the authorized banks that sells Sovereign Gold Bonds.
How are the prices for the Sovereign Gold Bond fixed?
The price of the bond is fixed in Indian Rupees and is based on the previous week’s simple average gold price of 999 purity (Monday to Friday average) as published by the IBJA or the Indian Bullion and Jewellers Association Ltd. The issue price will then be disseminated by the RBI. The Reserve Bank of India will publish the relevant tranche on the RBI website 2 days before the open of the issue.
If I apply for the Sovereign Gold Bonds, will I surely get an allotment?
Yes. If you meet all the eligibility criteria, produce a valid identification document and pay the application money on time, then you will surely get an allotment.
How much will you get upon the maturity of your Sovereign Gold Bonds?
Upon the maturity of your Sovereign Gold Bond, the redemption amount will be equivalent to the prevailing market value of the grams of gold that was initially invested in Indian Rupees. This redemption price will be based on the previous week’s simple average gold price of 999 purity (Monday to Friday average) as published by the IBJA.
What is the procedure during redemption of my Sovereign Gold Bonds?
You will be advised a month before the maturity with respect to the ensuing maturity of your Sovereign Gold Bonds. On the maturity date, the credits of your maturity will be credited directly to the bank account you have listed on record. In case of any changes in any of your details such as your bank account number, your email address etc. then you must immediately intimate your respective bank, Post Office or agent.
Are banks allowed to invest in Sovereign Gold Bonds?
Yes. There is no bar on any institution applying for Sovereign Gold Bonds. However, these institutions such as banks will qualify for SLR.
Applying for Sovereign Gold Bonds through HDFC Bank
If you wish to apply for Sovereign Gold Bonds from HDFC bank, you can walk into your nearest HDFC bank branch or contact your HDFC Relationship Manager who will assist you with the same. You can also apply for these bonds online through HDFC Netbanking.
Eligibility Criteria for investment in Sovereign Gold Bonds
- Resident Indian entities that include individuals, Hindu Undivided Families (HUFs), Universities, Trusts and Charitable institutions only are eligible to purchase the Sovereign Gold bonds.
- Joint holding is also allowed for investing in these bonds.
- Minors are also eligible to apply for these bonds but the application must be made by a parent or guardian on behalf of the minor.
Crediting of Interest
The interest earned from the Sovereign Gold bonds will be credited on a semi – annual basis in the investor’s account.
Minimum and Maximum Investment Criteria for Sovereign Gold Bonds
The minimum subscription for the Sovereign Gold bonds is 2 grams per investor, per annum. The maximum subscription for the Sovereign Gold bonds is 500 grams per investor, per annum. Each member of a family are also eligible to invest in these bonds provided they meet the eligibility criteria.
Payment Details for Sovereign Gold Bonds
All investors must compulsorily provide their bank account details in order to facilitate the payment of the interest / maturity value.
Sovereign Gold Bond Tenure and Premature Encashment
- The tenure of the Sovereign Gold bond is 8 years.
- Early redemption or encashment of the bonds are allowed after the 5th year from the issue date printed on the coupon payment date.
- In case of premature encashment, you must approach the concerned Post Office / bank / agent 30 days prior to the coupon payment date.
- A premature redemption request can only be entertained if you approach the concerned Post Office / bank / agent at least one day prior to the coupon payment date.
- If the bond is held in the demat form, it will be tradeable on Exchanges.
- You can also transfer your bond to any other investor who is eligible.
Using Sovereign Gold Bonds as Collateral for Loans
You can use Sovereign Gold bonds as collaterals for your loans from banks, financial institutions as well as NBFC (Non - Banking Financial Companies). The loan to value ratio for these bonds will remain the same as those applicable to ordinary gold loan as mandated from time to time by the RBI.
Customer Service post issuance of the Sovereign Gold Bonds
The issuing agents, post office or the banks from where you have purchased the Sovereign Gold Bonds will provide you with customer services that include early redemption, change of address, nomination facility and so on.
Payment Option for Investing in Sovereign Gold Bonds
You can make the payment for the Sovereign Gold Bonds through the following ways –
- Demand Draft
- Electronic fund transfer
Trading Sovereign Gold Bonds
You can trade these bonds at stock exchanges from the date which will be notified by the RBI. These bonds can be transferred or sold as per the provisions of the Government Securities Act.
Part Repayments of Sovereign Gold Bonds
Part holdings of the Sovereign Gold Bonds can be redeemed in multiples of 1 gram.
Know Your Customer (KYC) Norms
The KYC norm for Sovereign Gold Bonds will be the same as that of the purchase of physical gold. Identification documents will be required for the same. Identification documents include –
- Aadhaar Card
- PAN Card
- TAN Card
- Voter ID card
The KYC check will be done by the issuing Post Office, bank or agents.
Limit of Sovereign Gold Bonds purchases on Exchange
The limit has been fixed at a maximum of 500 grams of these bonds per financial year. This limit is applicable even if the bond has been bought through exchanges.
Issuance of Sovereign Gold Bonds Holding Certificate
You will receive your Holding Certificate for your Sovereign Gold Bond on the issue date of the SGB. You can collect your Holding Certificate from the issuing Post Office / bank or your agent. Alternatively, you can also directly collect it from the RBI on email if you have provided your email address on the application form.
Gifting Sovereign Gold Bonds
You can gift or transfer Sovereign Gold Bonds to your family members, friends or anybody else if they fulfill the eligibility criteria discussed previously. These bonds will be transferred as per the provisions of the Government Securities Act, 2006 and Government Securities Regulations, 2007.
Tax Implications of Sovereign Gold Bonds
The interest and the capital gained through the Sovereign Gold Bonds are both taxable. The interest on these bonds will be taxable according to the provisions made in the Income Tax Act of 1961 (43 of 1961). The capital gain incurred from these bonds will be taxed in the same way as physical gold.
TDS Applicability on Sovereign Gold Bonds
Tax Deductible at Source (TDS) is not applicable on Sovereign Gold Bonds. However, the bond holder must comply with the tax laws.
Nomination facility for Sovereign Gold Bonds
Nomination facility is available for Sovereign Gold Bonds according to the provisions made as per the Government Securities Act of 2006 and the Government Securities Regulations of 2007. The Nomination Form is available online for download.
Joint Applicants maximum limit of holding Sovereign Gold Bonds
In case of joint holding of Sovereign Gold Bonds, the maximum limit of 500 grams is applicable for the 1st applicant for that specific application.