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What are Sovereign Gold Bonds?

Want to invest in Gold but without taking the risks associated with physical gold? Then, Sovereign Gold Bond is the best option.

Sovereign Gold Bonds (SGBs)

SGBs are issued by Reserve Bank of India (RBI) on behalf of the Government of India. They are issued as Government of India Stock in accordance with Section 3 of Government Securities Act, 2006.

Sellers and investors of SGBs

SGBs are sold through ‘Receiving Offices’ such as Scheduled Commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE). 

Eligible investors include individuals (including minors), HUFs, trusts, universities and charitable institutions. 

Subscribing to SGBs

  • SGBs are denominated in multiples of 1 gram. 
  • Minimum investment in SGBs – 1 gram.
  • Maximum limit for subscribing to SGBs – 4 Kg for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per financial year (April-March). The annual ceiling includes SGBs subscribed under different tranches during initial issuance by Government and those purchased from the Secondary Market (for eg. through stock exchanges).
  • In case of joint holding, the investment limit of 4 Kg is applied to the first applicant only.

Tenor of SGBs

  • The tenor of SGBs is 8 years with an exit option after 5th year. 
  • The request for pre-mature redemption is to be submitted by the investor at least 10 days before the next interest payment date. 
  • On maturity and in case of premature redemption, SGBs are redeemed in Indian Rupees. 

Fixing price of SGBs

  • Price of SGB is fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association (IBJA) Limited for the last 3 working days of the week preceding the subscription period. 
  • The issue price of SGBs is less by ₹50 per gram for those investors applying online and making payment through digital mode.
  • The redemption price is fixed in Indian Rupees based on simple average of closing price of gold of 999 purity, of previous 3 working days published by IBJA Ltd.

Payment for SGBs

Payments for SGBs can be made in Indian Rupees through cash (up to ₹20,000) / cheque / demand drafts / electronic banking. 

Financial benefits of SGBs

  • SGBs earn interest at a fixed rate of 2.50% p.a. payable semi-annually on the nominal value (amount of initial investment). The interest on SGBs is taxable as per the provision of Income Tax Act, 1961.
  • The capital gains tax arising on redemption of SGBs to an individual is exempted.
  • The indexation benefit is provided to long term capital gains arising to any person on transfer of SGBs.
  • SGBs can be used as collateral for loans. The Loan to Value (LTV) ratio is same as applicable to any ordinary gold loan.

Holding SGBs

SGBs can be held in any of the following forms –

  1. Bond Ledger Account (BLA)
  2. RDG Account with RBI
  3. Demat account with Depositories viz NSDL / CDSL

The holder of SGBs may convert the bonds from BLA to RDG account / de-materialised form.

SGBs acquired by the banks through the process of invoking lien / hypothecation / pledge alone, can be counted towards Statutory Liquidity Ratio (SLR).

Transfer / trading of SGBs

  • SGBs can be traded in the secondary market through stock exchanges.
  • SGBs are transferable before maturity to eligible transferees wholly / in part by execution of an instrument of transfer (Form F), in case of SGBs held in BLA.
  • In case of SGBs held in demat account with NSDL / CDSL, ownership of dematerialised SGBs can change through trading in stock exchanges / off market transactions.

Commission to Receiving Offices for distribution of SGBs

Commission for distribution of SGBs is paid at the rate of 1% of the total subscription received by the receiving offices and receiving offices are required to share at least 50% of the commission so received with the agents / sub agents for the business procured through them.

Application and documentation for SGBs

  • Applications (Form A) can be submitted to the Receiving Offices at the branches directly / through agents. 
  • Every application must be accompanied by ‘PAN details’.
  • On receipt of complete application, an acknowledgement receipt (Form B) is issued.
  • On the date of allotment, the “Certificates of Holding” (Form C) are issued to the subscribers. 
  • The investor can nominate maximum 2 persons (Form D) or cancel an existing nomination (Form E). 

Redressal of investor’s complaints 

The process for redressal of investor’s complaints is as follows –

  • Nodal officers of Receiving Office is the first point of contact for attending to the queries / complaints of their customers.
  • The investor may approach RBI at sgb@rbi.org.in if the reply is not received from the Receiving Office within 1 month of lodging the complaint or the investor is not satisfied with the response of the Receiving Office.


References

Reserve Bank of India. (2021, October 21). 'Sovereign Gold Bond Scheme 2021-22'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52440

Reserve Bank of India. (2021, October 22). 'Sovereign Gold Bond Scheme of the Government of India (GoI) - Procedural Guidelines - Consolidated'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12181&Mode=0


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