Sovereign Gold Bond offered by State Bank of India is the most profitable form of gold investment. The gold bond is issued tranches and so it is not available all year round. The first branch of gold bond was issued in November, 2015. Post offices and SBI are the main channels to sell the gold bonds as they both have the highest reach in India.
Features of Sovereign Gold Bond
The features of Sovereign Gold Bond offered by State Bank of India are as follows:
- Gold bond can be bought in the place of physical gold.
- The gold bond price is linked to the price of gold.
- The purchase price and selling price of the bond will be the prevailing market price of the gold.
- If the gold value rises, the gold bond value also rises. It is similar to that of owning gold in the form or gold coins and bullion.
- Apart from the prevailing rate of gold, you will also earn an interest which is paid half-yearly. The current rate of interest on gold bonds are set at 2.75% per annum.
- The issue price of the gold will be the gold’s market value of the previous week.
- The tenure is 8 years and premature redemption is possible after 5 years.
- This is just like any other government bond, but it has a higher appeal and a wider reach.
- The gold bond can be transferred to another person for which you will have to fill up the Form F. The transferee will have to fill the application form, nomination form and fulfil the KYC formalities.
- The bond can be sold to another person in the bond market. RBI will notify when the trading can start. In order to trade the bond, you will have to keep it in the demat form.
Benefits of Sovereign Gold Bond
The benefits of Sovereign Gold Bond offered by State Bank of India are as follows:
- Gold bond can be bought online and this makes its purchase relatively easy.
- There is no need for safekeeping as it is in a digital form and free from theft.
- You can earn interest on the gold bond, but having physical gold doesn’t offer you interest.
- This bond is 100% pure and saves you from jewellers that offer impure gold.
- Gold bond doesn’t charge any expenses.
- You can also take a loan against the gold bond.
Process to buy Sovereign Gold Bond
Gold bonds are issued at least twice a year and the government has not specified the timing yet but it may be close to Akshaya Tritiya and Diwali. The Sovereign Gold Bond can be bought from any SBI branch. To subscribe to the gold bond, -Kuber core banking system of RBI is used. The following are the steps to buy gold from SBI:
- The gold forms are available online which you can print out and fill.
- You will be required to fill 3 forms for initial subscription. Form A is the main subscription form where you will have to give your personal details and specify the subscription amount. Form B is to give the acknowledgement, the bank officer will give you this form to fill the subscription details. Form D is for nomination and it must be submitted with Form A. If you want to cancel the nomination, you have to use Form E.
- Attach your identity and address proof with the form to complete the KYC formalities.
- If you are paying through cheque, you have to cancel the cheque. You can also pay through cash, demand draft and electronic fund transfer. The cheque and demand draft must be in the name of the respective branch of State Bank of India.
- Submit all the forms along with the required documents to the branch.
- After the details have been checked, you will receive the Form B, which is the acknowledgement receipt.
- To subscribe for gold, you will have to go to the branch and the SBI official will access the e-Kuber system of RBI and will upload your data and an immediate confirmation will be provided.
- RBI will generate the holding certificates for the subscription the bank will download it and get it printed and will be sent to the investors.
- If the investor has specified for the demat account, the securities will be credited to the investors demat account on the allotment date.
Interest Payment on Sovereign Gold Bond
Investing in gold bonds is lucrative as the bonds earn interest unlike gold ETF and physical gold. Every 6 months, interest is payable on the bond and is credited directly to the account information provided. SBI is not involved in paying interest to the bondholders. The RBI will pay interest directly without any middle intervention. Interest is calculated on the initial investment made in the Sovereign Gold Bond Scheme. The final installment of interest earned will be paid with the maturity amount.
- Servicing of Sovereign Gold Bond
If you require any changes to be made to the details you provided under the Sovereign Gold Bond, you can approach any SBI branch and make your request. You can change your address, nomination, and so on. If you want to withdraw your bond prematurely, you can contact your bank.
- Redemption of Sovereign Gold Bond
Redemption of gold bonds is set at 8 years from the start of the tranche. The redemption value will be transferred to your bank account along with the last installment of interest. You will be informed about the redemption one month before completing 8 years by the SBI branch. The value of the gold upon redemption will be based on the price of gold in the previous week.
- Transfer of Sovereign Gold Bond
Gold bonds can be transferred from one person to another. To apply for a transfer, you need to fill up the relevant form and submit it to SBI. The person to whom the bond is being transferred is required to fill up the relevant application form, nomination form and must fulfill the KYC norms set out under the Sovereign Gold Bond Scheme. Upon successful completion of the transfer procedure, the bond would be transferred.
- Trading Sovereign Gold Bond
The Sovereign Gold Bonds can be traded in the bond market and sold off to an interested buyer. The RBI will notify bondholders when the markets will open for trading. To be eligible to trade the bond, you need to maintain it in Demat form. It can be held within any Demat depositary of yours such as stocks in CDSL and NSDL. If you need to convert your bonds to Demat form, simply apply for the same at the depositary. The SBI does not play a role in the trading aspect of the sovereign gold bonds.
- Forms of Sovereign Gold Bond Scheme
All forms related to the Sovereign Gold Bond Scheme are available at SBI branches. To save time and the hassle, these forms are also available online. You can download the form, print it and fill it out to save time at the SBI branch. Banks are permitted to put their own branding on the forms. The physical copy of the form will be maintained at the bank branch.
1. What are the benefits of investing in SGB rather than physical gold?
- SGB offers an alternative to holding physical gold.
- It reduces the risk and cost associated with storing physical gold.
- The quantity of gold purchased under the scheme is protected.
- The investor will receive the market price of gold at the time of redemption or premature withdrawal.
- The investment will earn interest periodically.
- There are no making charges applicable as is the case with physical gold.
- There is no question of purity of gold under this scheme.
- Bonds can be held in the books of RBI or in Demat form.
2. What are the risks associated with investing in SGBs?
If the market price of gold declines and the market value of gold is low at the time of redemption, then there is a risk of capital loss. The investor will not lose in terms of the units of gold purchased.
3. What is the eligibility requirements of the SGBs?
- Residents of India as defined under Foreign Exchange Management Act, 1999.
- Eligible investors include individuals, charitable institutions, trusts, HUFs, universities, etc.
4. Can an SGB be jointly held?
Yes, joint holdings of SGBs are allowed.
5. Can I buy an SGB for my minor child?
Yes, you can purchase SGBs for minors. The application for the SGB must be made by the parent or guardian on behalf of the minor.
6. Where are SGB application forms available?
Forms are available on the RBI website. Issuing banks, designated Post Offices and agents will also have SGB application forms. Banks may also provide the option of applying online through their own website.
7. What are the Know-Your-Customer (KYC) norms for SGBs?
There is no difference between the Know-Your-Customer (KYC) norms for purchase of SGBs and purchase of physical gold. You are required to provide any identification documents such as PAN or TAN, Aadhaar card, Passport, or Voter ID card. The KYC fulfillment will be carried out at the issuing bank, post office or by the agent.
8. What are the minimum and maximum limit for investment in SGBs?
The minimum investment required for the SGBs is 1 gram of gold. Bonds will be issued in denominations of 1 gram and multiples thereof. Each person can purchase a maximum of 500 grams of gold per fiscal year. For joint holders, the limits apply to the first applicant.
9. Is it possible to purchase 500 grams in the name of my family members to increase my investment?
Yes, you can buy bonds in the name of your family members as long as they meet the eligibility criteria and KYC requirements.
10. Can I buy 500 grams worth of SGBs every fiscal year?
Yes, you are allowed to buy the maximum limit of SGBs every fiscal year. The limit is only on a yearly basis.
11. If I purchase the bonds through Exchanges, will the limit of 500 grams of gold still apply?
Yes, the limit will apply even if the bond is bought through the exchange.
12. What is the interest rate offered on SGBs and how will it be paid?
The rate of interest offered is fixed 2.50% p.a. on the initial investment. Interest is paid every 6 months directly to the bank account. The last installment of interest is paid along with the maturity value.
13. Who is authorised to sell SGBs?
Scheduled commercial banks and designated Post Offices are authorised to sell SGBs directly or through their agents like NSC, NBFC agents, etc.
14. Do I have to purchase SGBs through my own bank?
You can purchase the SGBs from any bank or post office. It is not required to purchase the SGBs only from the bank at which you hold an account.
15. I have applied for SGBs, does this mean I am assured of allotment?
Once you have applied for the SGB, if you fulfill the eligibility criteria, provide a valid identification document and remit the application money on time, you will receive your allotment.
16. When will I receive my SGB Holding Certificate?
On the date of issuance of the SGB, the Certificate of Holding will be issued. You can collect it from the issuing bank, post office or agent. You can also get the certificate from directly from the RBI or through email, if you provided an email address in your application form.
17. Can I apply for the SGBS online?
Yes. The listed scheduled commercial banks have opened facilities for customers to apply for the SGB online through their respective websites.
18. What is the price of an SGB?
The price of the SGB is based on the previous week’s (Monday to Friday) simple average price of gold that will be published by the Indian Bullion and Jewellers Association Ltd. The price is declared in Indian Rupees on 999 purity of gold.
19. Will the rate of gold applicable be published by the RBI every day?
The RBI will publish the price of gold for the relevant tranche on its website two days before the SGB issue opens.
20. What is the benefit of the SGB upon redemption?
On the maturity date, you will receive the following:
- The prevailing market value of grams of gold initially invested (In Indian Rupees).
- Last installment of interest earned on the initial investment.
The redemption price will also be based on simple average of previous week’s (Monday to Friday) price of closing gold price for 999 purity published by the IBJA.
21. How will the redemption amount be given to me?
Redemption benefit will be directly credited to your bank account - the details of which you provided at the time of purchasing the SGB.
22. What is the process for redeeming the SGB?
- One month before the SGB matures, you will be informed.
- If you have any changes that need to be made such as your bank account details, email ID and so on, that could affect your payment, you need to inform your bank or post office as soon as possible.
- On the date of maturity, the benefit will be paid directly to your bank account which is on record.
23. Can I redeem the SGB before the maturity date?
Premature redemption and encashment is allowed after the fifth year from the issue date of the SGB or the coupon payment date. You can also trade your bond - if it is held in demat form - on the Exchanges. You are also allowed to transfer the bond to any other person who meets the eligibility criteria.
24. What is the process for premature redemption of the SGB?
If you wish to make a prematurely redemption, you need to approach the concerned bank, post office or agent 30 days prior to the coupon payment date. Your request will be entertained only if you approach the bank, agent or post office at least 1 day ahead of the coupon payment date. Once you have made your request, the proceeds will be directly credited to your bank account on record.
25. Am I allowed to gift an SGB to a relative or friend?
Yes, you can buy a bond at the time of its issue in the name of a family member. You can also transfer the bond to a friend or relative at any time as long as the transferee meets the eligibility criteria.
26. Can I offer SGBs as collateral for loans?
Yes, for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC), SGBs are eligible to be used as collateral. The Loan to Value ratio will remain the same as for the ordinary gold loan which will be mandated by the RBI from time to time.
27. Are there taxes applicable on interest and capital gains under the SGB?
As per the provisions of the Income-tax Act, 1961(Section 43), interest earned on the bonds will be taxable. However, capital gains on redemption is exempted from tax. The indexation benefits against long-term capital gains will be provided to any person on transfer of bond.
28. Is there TDS (tax deducted at source) applicable on the bond?
There is no TDS applicable on the SGB. The responsibility of complying with the tax laws will be borne by the SGB holder.
29. Is there a customer service to address grievances under this scheme?
Customer services will be provided by the issuing banks, post offices or agents through which the bond was purchased. They will handle change of address, early redemption, nomination, etc.
30. How do I make the payment to buy a Sovereign Gold Bond?
Payment can be made through the following modes:
- Demand draft
- Electronic fund transfer
31. Can I nominate someone for the SGB?
Yes, you can nominate someone by filling out the relevant form and submitting it along the application form. Nomination facility will be carried out as per the provisions of the Government Securities Act 2006 and Government Securities Regulations, 2007.
32. What is the maximum limit of SGB in case of joint holding?
The maximum limit for joint holding is not specified. The limit of 500 grams of gold is applicable to the first applicant.
33. Can institutions or companies invest in Sovereign Gold Bonds?
There is no restriction on banks or institutions investing in SGBs. The SGB will qualify for SLR.
34. Can I apply for the bonds in demat form?
Yes, the bonds can be held in demat account or converted at any time later.
35. Where can I trade these bonds?
From a date that will be decided on by the RBI, you will be allowed to trade the SGBs on stock exchanges/NDS-OM. As per the Government Securities Act, the bonds can be sold and transferred.
36. Can I apply for part repayment of SGBs?
Yes, you can redeem part holdings in multiples of one gram at the time of exercising the put option.