How to Invest in Sovereign Gold Bonds?

How can you invest in Sovereign Gold Bonds?

Investment in SGBs is possible when open for subscription.

You need to fill out the application form (Form A), state the grams (units) of gold you wish to invest, your full name, residential address, email id, Permanent Account Number (PAN), nomination details, bank details, and valid identification documents, along with the application money.

The application form for investment in SGBs is available with the issuing banks and with designated Post Offices/agents. You may download the application form from the RBI's website.

It's possible to apply and purchase SGBs, both offline and online. But when you buy these bonds online, the issue price will be Rs 50 per gram lower than the nominal value per gram of gold.

Once the application form is duly filled, signed, and submitted with the valid document plus the application money, you receive the allotment.

On allotment, a ‘certificate of holding' is issued with a certificate number, stating the amount invested, the number of units allotted, issue date, maturity date, unique investor id, bank IFSC, and nominee details.

You also have the option to convert your holdings into dematerialised (demat) form.

What is the minimum and maximum you can invest in Sovereign Gold Bonds?

The minimum investment allowed is 1 gram.

The maximum investment limit is a subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year.

Note that, in the case of joint holdings, the limits shall apply to the first applicant.

The Benefits of Investing in Sovereign Gold Bonds

• During the holding period, you, the investor, earn interest @2.50% p.a. (fixed rate) on the initial amount in SGBs. The interest earned is credited semi-annually to your bank account, and the last interest is payable on maturity along with the principal.
• At the end of the tenure of 8 years, your SGBs are redeemed. The redemption price shall be based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the date of repayment, published by the India Bullion and Jewellers Association (IBJA).
• When you redeem your investment in SGBs, both the interest and redemption proceeds will be credited to the bank account furnished by you at the time of purchasing these bonds.
• You can prematurely encash SGBs at the end of the lock-in period of 5 years (from the date of issue), by placing a sell order on the exchange. You may also approach the concerned bank or post office at least one day before the coupon payment date and the proceeds will be credited to the bank account.
• Say, for some reason, you need the money but do not wish to prematurely redeem your investment, you can avail of a loan against your SGBs. The loan-to-value (LTV) will be equal to a regular gold loan.
• You can also gift SGBs to your near and dear ones, provided the person whom you intend to gift, fulfils the eligibility criteria.
• It is possible that you benefit from capital appreciation of gold since SGBs are linked to the price of gold.

Tax Implications of Investing in Sovereign Gold Bonds

The interest earned on SGBs is taxable (under ‘Income from Other Sources') as per the provisions of the Income-tax Act, 1961 (43 of 1961) and will be taxed as per your income-tax slab. Tax Deduction at Source (TDS) does not apply to the interest earned.

Speaking about the capital gains, SGBs that are sold at maturity (i.e. at the end of the tenor of 8 years) are exempt from capital gain tax.

However, if SGBs are sold before maturity, that is, at the end of the lock-in period of 5 years, Long Term Capital Gain (LTCG) tax @ 20% (with indexation benefit) will be levied, plus the applicable surcharge and 4% cess.

Happy Investing!