Sovereign Gold Bond Scheme
What is Sovereign Gold Bond (SGB)?
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
The Bond is issued by Reserve Bank on behalf of Government of India.
An investor can have only one unique investor Id linked to any of the prescribed identification documents. The unique investor ID is to be used for all the subsequent investments in the scheme. For holding securities in dematerialized form, quoting of PAN in the application form is mandatory.
The application form is being provided by the issuing banks/SHCIL/offices designated Post Offices/agents. It can also be downloaded from the RBI’s website. Banks may also provide online application facility.
Eligibility & Investment Limit in the SGBs
- Persons resident in India as defined under Foreign Exchange Management Act, 1999.
- Individuals, HUFs, trusts, universities and charitable institutions are eligible investors.
- Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
- Joint holding is allowed.
- Minor can also invest in SGB. The application on behalf of the minor has to be made by his/her guardian.
- Minimum and maximum limit for investment- The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities.
- In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions
Rate of Interest
The Bonds bear interest at the rate of 2.50% (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
Benefits of SGB
- The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption.
- SGB provides a superior alternative to holding gold in physical form. Thus, risks and costs of storage are eliminated.
- Investors are assured of the market value of gold at the time of maturity and periodical interest.
- SGB is free from issues like making charges and purity in the case of gold in jewellery form.
- The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
Risks in investing in SGBs
Although, the investor does not lose in terms of the units of gold which he has paid for, yet there may be a risk of capital loss if the market price of gold declines.
Authorized Agencies for Selling SGBs
Bonds are sold through offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorized stock exchanges either directly or through their agents.
The customers will be issued Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI on email, if email address is provided in the application form.
Redemption
- On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3- business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.
- Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.
- The investor will be advised one month before maturity regarding the ensuing maturity of the bond.
- On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record.
- In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.
- Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.
- Part holdings can be redeemed in multiples of one gm.
Tax Implications
- Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.
- TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.
Frequently Asked Question (FAQ)
Can each member of my family buy 4Kg in their own name?
Yes, each family member can buy the bonds in his/her own name if they satisfy the eligibility criteria.
Can an investor/trust buy 4 Kg/20 Kg worth of SGB every year?
Yes. An investor/trust can buy 4 Kg/20 Kg worth of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.
Is the maximum limit of 4 Kg applicable in case of joint holding?
The maximum limit will be applicable to the first applicant in case of a joint holding for that specific application.
Can I get the bonds in demat form?
Yes. The bonds can be held in demat account. A specific request for the same must be made in the application form itself.
Till the process of dematerialization is completed, the bonds will be held in RBI’s books. The facility for conversion to demat will also be available subsequent to allotment of the bond.
Can I use these securities as collateral for loans?
Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Granting loan against SGBs would be subject to decision of the bank/financing agency, and cannot be inferred as a matter of right.
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