Sovereign Gold Bonds (SGBs), which are issued by the Reserve Bank of India (RBI), are a convenient way to invest in gold in non-physical form. These government securities, which are denominated in gold, offer sovereign guarantee on the interest and principal repayments. The interest is paid semi-annually. The principal amount, on the other hand, is linked to the gold’s value as determined by RBI from time to time.

Key Features

• SGBs are efficient replacements for physical gold, and eliminate the risk of theft, and the hassles and cost of storage.
• The interest-bearing SGBs are issued in tranches by RBI on behalf of the government of India.
• The terms of issue, such as subscription, timelines and price, are notified by RBI.
• SGBs have a lock-in of eight years, but they can be redeemed during RBI’s prescribed buyback windows which open after the fifth year.
• Each SGB unit is equal to 1 gm of gold.
• SGBs can be used as collateral for gold loans, which various banks provide at their discretion.

How To Buy

• SGBs are available both in demat and non-demat form.
• You can buy SGBs at bank branches, designated post office branches, Stock Holding Corporation of India and authorised stock exchanges.
• You can also buy them through RBI’s Retail Direct portal.
• Buying SGBs online would entail a discount of Rs 50 to the issue price.
• Resident Indians, as per the FEMA Act, 1999, including individuals, HUFs, trusts, universities and charitable institutions, are eligible to invest in SGBs.
• An individual investor can buy up to 4 kg worth of gold by investing in SGBs, while the limit for institutional buyers is 20 kg.

Interest, Tax And Buyback

• SGBs pay a semi-annual interest rate at 2.5 per cent. The central bank credits the interest rate payment directly into the customer’s savings bank account.
• The interest paid to bondholders is taxable in the hands of the buyer, but the amount withdrawn through RBI’s specified buyback window or on the bond’s maturity after eight years is tax-exempt.
• RBI determines the bond’s buyback price before announcing the repurchase window.
• Sovereign Gold Bonds can be sold in the secondary market if held in demat mode. However, getting the desired price or quantity could be tricky as trading is mainly done on special occasions.