Sovereign Gold Bond Scheme 2023: How to Buy Online

“Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.” – Norm Franz

Have you ever wanted to invest in gold but hesitated due to concerns about physical ownership and storage? Well The sovereign gold bond scheme offers a government-backed investment opportunity that allows individuals like yourself to invest in gold without the hassle of owning it physically.

Introduced by the Indian government in 2015, this innovative scheme aims to reduce the demand for physical gold while promoting financial savings.

The sovereign gold bond scheme provides an alternative form of investment that combines the stability and value of gold with the convenience and security of financial instruments. By investing in these bonds, you become a part-owner in gold without worrying about its safekeeping or authenticity. This opens up new avenues for investors who want exposure to gold’s potential while avoiding the challenges associated with traditional forms of investment.

So, if you’re looking for a way to diversify your portfolio and tap into the potential benefits of investing in gold, consider exploring the sovereign gold bond scheme.

What is a Sovereign Gold Bond?

Sovereign gold bonds are financial instruments issued by the Reserve Bank of India (RBI) that allow individuals to invest in gold. These bonds are denominated in grams of gold, providing investors with an opportunity to own gold without physically possessing it. Backed by the government, sovereign gold bonds offer security and assurance to investors.

Issued by the RBI

The Reserve Bank of India issues sovereign gold bonds as a means to mobilize the country’s idle gold reserves and reduce dependence on imports. By offering these bonds, the RBI provides individuals with an alternative investment avenue while also contributing to the overall stability of the economy.

Denominated in Grams of Gold

One key feature of sovereign gold bonds is that they are denominated in grams of gold. This allows investors to track their investment based on the prevailing market price of gold. The denomination ensures transparency and clarity regarding the value of the investment throughout its tenure.

Backed by Government Security

Unlike other forms of investment in physical or digital gold, sovereign gold bonds offer additional security as they are backed by the government. This backing provides investors with peace of mind, knowing that their investments are supported by a trusted authority.

Dematerialized Form or Certificate Holding

Investors have two options.

In dematerialized form, these bonds can be held electronically through a Demat account, making them easily tradable and transferable.

To hold SGBs in dematerialized form, investors need to have a demat account with a registered depository participant (DP). The DP acts as an intermediary between the investor and the RBI, facilitating the issuance and redemption of SGBs.

Investors can access their certificate holding details through their demat account, which provides a consolidated view of their SGB investments. They can view the quantity of bonds held, the maturity date, and any interest earned on the investment.

In addition to the convenience and ease of tracking, holding SGBs in dematerialized form also offers benefits such as reduced paperwork, lower chances of loss or theft, and faster settlement of transactions.

Certificate Holding of Sovereign Gold Bonds

When an individual invests in SGBs, they receive a certificate of holding as proof of their ownership. This certificate is issued by the RBI and contains important details such as the investor’s name, bond series and number, and the quantity of gold represented by the bond.

The certificate holding of Sovereign Gold Bonds serves as a digital record of the investor’s ownership. It eliminates the need for physical certificates and provides a convenient and secure way to hold and trade SGBs. The dematerialized form of certificate holding allows investors to easily track their investments and facilitates seamless transactions.

It is important for investors to keep their certificate holding details secure and ensure that they have a reliable and trusted demat account provider. Regular monitoring of the demat account and staying updated with any changes in regulations or procedures related to SGBs is also advisable.

Benefits of Investing in Sovereign Gold Bonds

Investing in sovereign gold bonds comes with a multitude of benefits that make it an attractive option for individuals looking to diversify their investment portfolio. Here are some key advantages:

Earns interest on investment, unlike physical gold holdings

One of the significant benefits of investing in sovereign gold bonds is that it allows you to earn interest on your investment. Unlike physical gold holdings, where the precious metal itself does not generate any returns, sovereign gold bonds provide an additional avenue for income. The government pays a fixed rate of interest on these bonds, which is typically higher than the returns offered by traditional savings accounts or fixed deposits.

By opting for sovereign gold bonds, investors can enjoy the potential for capital appreciation along with regular interest payments. This makes it an appealing choice for those who wish to leverage their investments and maximize their overall returns.

SGBs pay an annual interest rate of 2.5% on the nominal value of the investment, which gold ETFs and funds do not.

No storage or security concerns associated with physical gold

Another advantage of investing in sovereign gold bonds is that it eliminates the need for storage and security concerns commonly associated with physical gold. When you invest in physical gold, you have to ensure its safekeeping by either renting a secure vault or taking precautionary measures at home.

Sovereign gold bonds offer a hassle-free alternative as they are held electronically in dematerialized form. This means you don’t have to worry about safeguarding your investment physically or bearing additional costs for storing it securely. By investing in these bonds, you can avoid the inconvenience and expenses related to storing and protecting physical assets.

Eligibility for Sovereign Gold Bond Scheme

Who can participate in the Sovereign Gold Bond Scheme?

The Sovereign Gold Bond Scheme is open to a wide range of individuals and entities, ensuring that anyone interested in investing in gold can take advantage of this opportunity. The eligibility criteria for participating in the scheme are as follows:

• Resident Individuals: Indian citizens who are residents of the country can apply for the Sovereign Gold Bonds. Whether you’re a salaried employee, self-employed, or even a freelancer, as long as you meet the other requirements, you are eligible to invest.
• Hindu Undivided Families (HUFs): HUFs, which consist of a group of family members governed by Hindu law, can also participate in the scheme. This allows families to collectively invest in gold bonds and reap the benefits together.
• Trusts: Various types of trusts such as charitable trusts, religious trusts, educational institutions’ endowment funds, etc., can also invest in sovereign gold bonds. This inclusion ensures that organizations with specific purposes or goals have an avenue to diversify their investments.
• Universities and Charitable Institutions: Recognized universities and charitable institutions are eligible to participate in the scheme. This provision allows these organizations to utilize their surplus funds effectively while benefiting from the potential appreciation of gold over time.

Who cannot participate in the Sovereign Gold Bond scheme?

Minors: Individuals under the age of 18 are not eligible to invest in Sovereign Gold Bonds. To invest in these bonds, they must be of legal age and have the proper papers.

Individuals and entities from other countries: Foreign businesses and individuals who are not Indian residents are unable to invest in Sovereign Gold Bonds.

Individuals with Power of Attorney (POA): Individuals with Power of Attorney on behalf of another are generally not permitted to invest in SGBs. The investment must be made in the name of the real investor, and the person holding the POA cannot make the investment on their behalf.

Payment Options for Buying Sovereign Gold Bonds

There are several convenient payment options available to cater to different preferences and requirements. Whether you prefer cash transactions or electronic transfers, the process is designed to be hassle-free and accessible. Let’s explore the various payment options in detail:

Cash Payment up to Rs. 20,000 Allowed

For those who prefer traditional methods of payment, cash transactions are accepted for purchasing sovereign gold bonds. You can conveniently make cash payments up to Rs. 20,000 at authorized banks or post offices. This option is particularly suitable for individuals who feel more comfortable with physical currency and want a quick and straightforward transaction experience.

Cheque/Demand Draft/Electronic Transfer Accepted for Higher Amounts

If you plan on investing a higher amount in sovereign gold bonds, there are alternative payment methods available that provide greater convenience and security. You can opt for cheque payments or demand drafts, which offer a more formalized approach while ensuring a smooth transfer of funds.

Cheques provide a reliable way to make payments without the need for carrying large sums of cash. Simply issue a cheque payable to the designated authority responsible for issuing sovereign gold bonds. Similarly, demand drafts offer an additional layer of security as they are issued by banks on your behalf.

Electronic transfers are another popular option. By utilizing this method, you can easily transfer funds from your bank account directly into the designated account specified by the authorities responsible for issuing these bonds.

Process of Buying Sovereign Gold Bonds Online

The process of buying sovereign gold bonds online has become increasingly convenient and user-friendly. With the advent of internet banking and digital modes of payment, customers can now invest in these bonds from the comfort of their homes.

Visit designated banks’ websites or registered stock exchanges’ platforms

To initiate the purchase of sovereign gold bonds, customers need to visit designated banks’ websites or registered stock exchanges‘ platforms. These platforms provide a secure and reliable environment for investors to make their transactions. By accessing these websites, customers gain access to a range of information about the bonds, including their features, terms, and conditions.

Fill out necessary details and submit application online

Once on the designated platform, customers are required to fill out an online application form with all the necessary details. This includes personal information such as name, address, contact number, and email address. Customers may be asked to provide their Permanent Account Number (PAN) for verification purposes.

The application form also requires individuals to specify the quantity of sovereign gold bonds they wish to purchase. It is important to carefully review all the information provided before submitting the application to ensure accuracy.

Make payment through net banking or other electronic methods

After submitting the application form successfully, customers are directed towards making payment for their desired quantity of sovereign gold bonds. The most common method used for payment is net banking or internet banking.

What is the redemption process of sovereign gold bonds?

Redemption Process of Sovereign Gold Bonds

The redemption process of sovereign gold bonds is a straightforward and hassle-free way for investors to convert their investment into physical gold or cash. Here’s a step-by-step guide on how the redemption process works:

1. Check the Lock-in Period: Before initiating the redemption process, it’s important to be aware of the lock-in period associated with sovereign gold bonds. The lock-in period is typically five years from the date of issuance, during which the bonds cannot be redeemed. Make sure the lock-in period has ended before proceeding with redemption.
2. Contact the Issuing Bank or Post Office: To redeem your sovereign gold bonds, you need to reach out to the issuing bank or post office from where you purchased the bonds. They will provide you with the necessary forms and guidance to initiate the redemption process.
3. Submit the Redemption Request: Fill out the redemption form provided by the bank or post office. The form will require details such as your name, bond certificate number, and the quantity of bonds you wish to redeem. Make sure to double-check all the information before submitting the form.
4. Choose Redemption Option: You have two options for redemption: physical gold or cash. If you opt for physical gold, you need to specify the form in which you want to receive it, such as coins or bars. If you choose cash, provide the bank account details where the funds should be transferred.
5. Submit Required Documents: Along with the redemption form, you may need to submit additional documents such as identity proof, address proof, and the original bond certificate. Ensure you have all the necessary documents ready to avoid any delays in the redemption process.
6. Wait for Processing: Once you have submitted the redemption request and the required documents, the bank or post office will initiate the processing of your request. The time taken for processing may vary, but typically it takes a few days to complete the redemption process.
7. Receive Physical Gold or Cash: After the redemption request has been processed, you will receive either the physical gold or the cash equivalent as per your chosen option. If you have opted for physical gold, you can collect it from the designated branch of the bank or post office. If you have chosen cash, the funds will be transferred to your specified bank account.

By following these steps, you can easily redeem your sovereign gold bonds and convert your investment into physical gold or cash. Remember to keep track of the lock-in period and ensure you have all the necessary documents to make the redemption process smooth and hassle-free.

Trading and Holding of Sovereign Gold Bonds

Sovereign gold bonds offer investors a unique opportunity to invest in gold while enjoying the benefits of government securities. These bonds are not only tradable on stock exchanges but can also be conveniently held in dematerialized form through Demat accounts.

Tradable on Stock Exchanges

One of the key features of sovereign gold bonds is that they are tradable on stock exchanges within a specified period after issuance. This allows investors to buy or sell these bonds just like any other financial instrument traded on the exchange. By providing liquidity and a secondary market for these bonds, stock exchanges enable investors to easily enter or exit their positions as per their investment objectives.

The ability to trade sovereign gold bonds on stock exchanges brings several advantages. Firstly, it offers flexibility to investors who may want to adjust their portfolios based on market conditions or personal circumstances. For example, if an investor anticipates a rise in gold prices, they can choose to sell their bonds and realize potential gains. Conversely, if they believe that gold prices may decline in the future, they can purchase more bonds at lower prices.

Trading sovereign gold bonds on stock exchanges allows investors to take advantage of price fluctuations and capitalize on short-term opportunities. Traders who closely follow market trends can analyze price movements and make informed decisions regarding buying or selling these bonds accordingly.

Understanding the Importance of Sovereign Gold Bonds

Investing in gold has always been a popular choice for individuals looking to secure their financial future. Traditionally, people have relied on physical assets like jewelry or gold bars as a means of preserving wealth. However, with the introduction of sovereign gold bonds, there is now an alternative that offers numerous advantages over traditional methods.

Promotes financial savings over physical assets

Sovereign gold bonds encourage individuals to shift their focus from physical gold to financial savings. By investing in these bonds, individuals can enjoy the benefits of owning gold without the hassle and risks associated with storing and safeguarding physical assets. This promotes a more convenient and secure way of accumulating wealth.

Moreover, sovereign gold bonds offer an attractive interest rate on top of the price appreciation potential. This makes them more lucrative compared to holding physical gold that does not generate any income. By opting for these bonds, investors can benefit from both capital appreciation and regular interest payments.

Reduces reliance on imported gold, benefiting the economy

One significant advantage of sovereign gold bonds is their potential to reduce reliance on imported gold. Many countries heavily depend on importing this precious metal, which can put a strain on their economies. By offering an avenue for individuals to invest in domestic gold through these bonds, governments can mitigate this dependence and promote economic growth.

When citizens invest in sovereign gold bonds instead of purchasing imported jewelry or bullion, it helps channel funds into the country’s economy rather than flowing out as foreign exchange reserves. This boosts liquidity within the nation and contributes positively towards its overall economic stability.

Transferability and Gifting of Sovereign Gold Bonds

Sovereign Gold Bonds offer a unique feature that allows investors to transfer their bonds from one person to another, subject to certain conditions. This flexibility provides individuals with the opportunity to easily share their investment or even gift it to family members or loved ones.

Transferability: A Convenient Option

One of the key advantages of Sovereign Gold Bonds is that they can be transferred between individuals. Sovereign Gold Bonds can be gifted and transferred to a relative, friend, or anybody who meets the qualifying requirements. Please keep in mind that bonds are transferable only through the signing of a transfer instrument in line with the rules of the Government Securities Act and Regulations.

To initiate a transfer, both parties involved must complete the necessary paperwork and follow the prescribed procedures set by the issuing authority. The transferee must also meet the eligibility criteria for investing in Sovereign Gold Bonds. Once these requirements are fulfilled, the transfer can take place smoothly.

Transferability opens up various possibilities for investors. For instance, if you find yourself in need of funds but don’t want to liquidate your investment entirely, you could consider transferring some of your Sovereign Gold Bonds as collateral for a loan. This way, you can access funds while still retaining ownership of your bonds.

Moreover, transferring Sovereign Gold Bonds may be advantageous when diversifying your investment portfolio or managing financial obligations. By transferring some bonds to a trusted family member or friend who meets the eligibility criteria, you can ensure that your investments are well-distributed among different entities and reduce concentration risk.

Discounts for Online Applicants in Sovereign Gold Bond Scheme

In an effort to encourage digital transactions and promote ease of investing, the Sovereign Gold Bond Scheme offers a discount on the issue price for online applicants. This initiative aims to make investing in gold more accessible and convenient for individuals who prefer to handle their financial transactions digitally.

To avail this discount, online applicants need to fill out the application form provided on the designated platform during the subscription period. The process is straightforward and user-friendly, ensuring that investors can easily navigate through the necessary steps. Once the form is completed, it can be submitted electronically, eliminating the need for physical paperwork.

Upon successful submission of the application, investors will receive an email confirmation along with their unique investor ID. This ID serves as proof of participation in the scheme and provides access to various benefits associated with online applications, including discounts on the issue price.

It is important to note that there is a minimum investment requirement specified by the scheme. However, this minimum amount is relatively low compared to other investment options available in gold. Therefore, even small-scale investors can take advantage of this opportunity without facing significant financial barriers.

The Sovereign Gold Bond Scheme also ensures that investors’ interests are protected by requiring them to hold these bonds for a specific period before they can be redeemed or sold. This lock-in period helps maintain stability in the market and prevents short-term fluctuations caused by speculative trading activities.

Understanding SGB Pricing and Returns

Pricing Mechanism

Sovereign Gold Bonds (SGBs) are a unique investment option that allows individuals to invest in gold without physically owning it. The pricing mechanism of SGBs is an essential aspect to understand before considering investing in them.

The price of SGBs is linked to the prevailing market price of gold. The Reserve Bank of India (RBI), in consultation with the government, determines the issue price for each series of SGBs. This issue price is usually set at a slight premium to the current market price of gold.

To arrive at the issue price, the RBI takes into account various factors such as international gold prices, exchange rates, import duties, and other costs involved in issuing and managing these bonds. It ensures that investors get a fair deal while also considering the interests of issuers.

Calculating Potential Returns

When investing in sovereign gold bonds, it’s crucial to assess their potential returns. The returns on SGBs can be calculated based on two components: interest and capital appreciation.

SGBs offer an annual interest rate payable semi-annually on the initial investment amount. This interest is fixed by the government and remains constant throughout the tenure of the bond. It provides investors with a regular income stream over and above any capital appreciation.

In addition to earning interest, investors can also benefit from capital appreciation if the price of gold increases during the tenure of their investment. As SGBs are linked to gold prices, any rise in gold prices will result in an increase in their value.

How to Buy Sovereign Gold Bond Online?

To buy sovereign gold bonds online, the process is simple and convenient. You can do it from the comfort of your own home without needing to visit a physical bank or stock exchange. Here’s a step-by-step guide on how to purchase sovereign gold bonds online:

Visit designated banks’ websites or registered stock exchanges’ platforms

To begin the process, you need to visit the designated banks’ websites or registered stock exchanges’ platforms. These platforms provide a seamless experience for investors looking to buy sovereign gold bonds. On these websites, you will find all the necessary information and tools required for purchasing the bonds.

Fill out necessary details and submit application online

Once you have accessed the designated website or platform, you will need to fill out an application form with all the required details. The form typically includes personal information such as your name, address, contact details, and PAN (Permanent Account Number) card number. You may be asked to provide your demat account details if applicable.

Ensure that you carefully enter all the information accurately before submitting your application online. Any errors or discrepancies might cause delays in processing your request.

Make payment through net banking or other electronic methods

After submitting your application form, it’s time to make payment for the sovereign gold bonds. Most banks and stock exchanges offer multiple options for making payments electronically. The most common method is through net banking, where you can transfer funds directly from your bank account.

Alternatively, some platforms also accept payments through mobile wallets or other electronic methods like UPI (Unified Payments Interface).

Taxation of Sovereign Gold Bonds

Tax implications on interest income

It is essential to understand the tax implications on the interest income you earn. The interest earned on these bonds is taxable as per your income tax slab rate. This means that if you fall under a higher tax bracket, you will have to pay more taxes on the interest income generated from these bonds.

However, If you hold SGBs until maturity, the maturity proceeds are tax-free, and there is no capital gains tax.

Capital gains tax

Another aspect of taxation. If you sell these bonds before maturity, any profit or gain made will be subject to capital gains tax. The capital gains can be categorized into two types: short-term and long-term.

Short-term capital gains arise when you sell the bonds within three years of purchase. In this case, the gains are added to your taxable income and taxed as per your applicable slab rate.

On the other hand, long-term capital gains come into play when you sell the bonds after three years of holding them. The long-term capital gains are taxed at a flat rate of 20% with indexation benefits available. Indexation helps adjust the purchase price for inflation, reducing the overall tax liability.

Risks Associated with Sovereign Gold Bonds

Market Risk

Investing in sovereign gold bonds carries market risk, which refers to the possibility of losing money due to fluctuations in the price of gold. The value of gold can be influenced by various factors such as economic conditions, geopolitical events, and investor sentiment. When these factors cause the price of gold to decline, investors may experience a decrease in the value of their sovereign gold bond investments.

To illustrate this risk, let’s consider a scenario where an investor purchases sovereign gold bonds when the price of gold is high. If the price subsequently drops due to market forces, the value of their investment will also decrease. This fluctuation in market prices can impact both short-term and long-term returns on investment.

Market risk can be amplified by external factors such as changes in government policies or regulations related to gold trading. For example, if a government imposes restrictions on the import or export of gold, it could affect the demand and supply dynamics in the market, leading to potential losses for investors.

Interest Rate Risk

Sovereign gold bonds are subject to interest rate risk, which arises from changes in interest rates set by central banks or monetary authorities. These changes can directly impact the returns earned on these bonds.

When interest rates rise, existing bond prices tend to decline because newly issued bonds offer higher yields. This inverse relationship between bond prices and interest rates means that if an investor wants to sell their sovereign gold bonds before maturity when interest rates have increased, they may receive a lower price than what they initially paid for them.

Real Returns of Sovereign Gold Bond Scheme over Past 6 Years

Now that you have a comprehensive understanding of sovereign gold bonds, let’s delve into the historical returns they offer. Over the years, sovereign gold bonds have proven to be a lucrative investment option for individuals looking to diversify their portfolios and capitalize on the potential growth of gold. The returns are influenced by various factors such as the prevailing market price of gold, interest rates, and the tenure of the bond.

Look at the returns on Sovereign Gold Bonds over the previous six years. Remember that the actual returns will not be known until these bonds complete their maturity period of 8 years from the date of issuance.

Investing in sovereign gold bonds provides you with an opportunity to participate in the appreciation of gold prices while also earning an additional fixed interest rate on your investment. This unique combination makes it an attractive proposition for both short-term gains and long-term wealth creation. So why wait? Consider adding sovereign gold bonds to your investment portfolio today and unlock the potential benefits they offer.

FAQs

Can I sell my sovereign gold bonds before maturity?

Yes, you can sell your sovereign gold bonds before maturity on stock exchanges where they are listed. However, it’s important to note that liquidity may vary depending on market conditions.

Are there any tax benefits associated with investing in sovereign gold bonds?

Yes, investing in sovereign gold bonds offers certain tax benefits. The interest earned is exempt from income tax, and if you hold the bond until maturity, capital gains arising from its redemption are also tax-free.

What happens if I lose my physical certificate for sovereign gold bonds?

If you happen to misplace or lose your physical certificate for sovereign gold bonds, don’t worry! You can approach the issuing bank or post office with relevant details to get a duplicate certificate issued.

Can NRIs invest in sovereign gold bonds?

Yes, non-resident Indians (NRIs) are eligible to invest in sovereign gold bonds. The subscription amount can be paid through NRO/NRE accounts.

Is there a maximum limit for investing in sovereign gold bonds?

Yes, there is a maximum limit for investing in sovereign gold bonds. Individuals can invest up to 4 kg of gold, Hindu Undivided Families (HUFs) can invest up to 4 kg of gold, and trusts and similar entities can invest up to 20 kg of gold per fiscal year.

Are sovereign gold bond good investment?

Sovereign gold bonds can be a good investment option for individuals looking to diversify their portfolio and hedge against inflation. These bonds are issued by the government and are denominated in grams of gold, making them a convenient and accessible way to invest in gold without the need for physical ownership.

One of the key advantages of sovereign gold bonds is that they offer a fixed interest rate, providing investors with an additional source of income. This interest is paid semi-annually and is linked to the prevailing market rate of gold. Therefore, if the price of gold increases, investors can benefit from both the capital appreciation and the interest earned.

Another benefit of sovereign gold bonds is the tax advantage they offer. Unlike physical gold, which is subject to capital gains tax upon sale, the capital gains from selling sovereign gold bonds are exempted if held until maturity. This can result in significant tax savings for investors.

Furthermore, sovereign gold bonds are also highly liquid as they can be traded on stock exchanges. This provides investors with the flexibility to exit their investment before maturity if needed. Additionally, these bonds can be used as collateral for loans, allowing investors to unlock the value of their investment without selling it.

However, it’s important to note that sovereign gold bonds do have some limitations. Firstly, they have a fixed tenure of 8 years, with an exit option after the 5th year. Therefore, they may not be suitable for investors with short-term investment goals. Additionally, the returns from sovereign gold bonds are linked to the price of gold, which can be volatile. Therefore, investors should be prepared for fluctuations in the value of their investment.