Sovereign Gold Bonds (SGBs) offer a distinctive investment option that merges the benefits of gold with the ease of bond investment. Issued by the Reserve Bank of India, sovereign gold bonds enable individuals to invest in gold without the need for physical ownership and their value is denominated in multiples of grams of gold.
Launched in 2015, the sovereign gold bonds provide a practical alternative to buying and storing physical gold and other investment vehicles such as gold ETFs. They allow investors to diversify their portfolios, gain exposure to gold’s value, and earn interest on their investments.
Did you know that apart from sovereign gold bonds, you can also invest in virtual gold through gold funds?
Let us learn all about sovereign gold bonds here:
What Are Key Features of Sovereign Gold Bonds?
1. Government Backing
These bonds are issued by the RBI on behalf of the Government of India. The principal amount (the value of gold invested) and interest payments are guaranteed by the sovereign. This makes Sovereign Gold Bonds a reliable choice for investors seeking stability and security, especially in a volatile market. The credit risk is extremely low due to backing by the government. The issuance and management are regulated by the RBI and the Ministry of Finance. This regulatory oversight ensures that the process is transparent and that the bonds are managed in a way that maintains investor confidence.
2. Interest
Sovereign Gold Bonds offer a fixed annual interest rate (typically around 2.5% per annum) which is payable semi-annually.
3. Tenure
Sovereign Gold Bonds have a tenure of eight years from the date of issue with an exit option after the 5th year.
3. Pricing
The price of these bonds is linked to the price of gold, which is determined based on the average closing price of gold of 999 purity over the last 3 working days of the week preceding the subscription period quoting on IBJA (Indian Bullion & Jewellers Association Limited). The price at the time of redemption is determined based on a similar mechanism.
3. Redemption
On maturity, the investor receives the value of the gold (at the current market rate) along with the final interest payment.
4. Taxation
The interest income is subject to taxation at the applicable marginal tax rate, meaning it will be taxed as per the investor’s income tax slab. However, Tax Deducted at Source (TDS) is not applied to this interest income. However, the capital gains tax arising on maturity is exempt for individuals, Hindu Undivided Families (HUFs), trusts and similar entities. Any redemption with RBI is tax-free meaning if these bonds are not sold in the secondary market but redeemed with RBI only, gains are tax-free.
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5. Who are eligible to invest
Indian residents including individuals, HUFs, trusts and charitable institutions are eligible to invest in Sovereign gold Bonds.
6. Application Period
Sovereign Gold Bonds are issued in tranches, usually every quarter of the fiscal year. Each tranche has a specific subscription period, typically lasting about one week. During this time, investors can apply for the bonds. The exact dates for each tranche are announced by RBI and can be found on their official website or through notifications from participating banks and financial institutions. Prior to the subscription period, the RBI releases a notification detailing the dates, terms and other specifics of the bond issuance.
Investors can monitor RBI announcements or consult with their banks and financial institutions for the exact dates and procedures. While the primary application periods are quarterly, Sovereign Gold Bonds can be traded on stock exchanges (NSE and BSE) after the initial subscription period. This provides some flexibility if the primary subscription window is missed.
7. Application Process
One can apply for Sovereign Gold Bonds through the RBI’s website. Additionally, several designated banks and financial institutions offer online applications via their net banking platforms. For those preferring offline applications, the investor can visit the branches of authorized banks and financial institutions to apply in person. It is important to note that these must be bought through SEBI-authorised selling agencies only.
How to Buy Sovereign Gold Bonds
- Check Availability: Look for the latest tranche announcement from the RBI or visit their official website.
- Choose a Bank/Institution: Decide whether you want to apply online or offline.
- Submit Application: Fill out the application form, providing necessary details and KYC documents.
- Make Payment: Pay the subscription amount through your bank account.
- Receive Bonds: Once processed, the bonds are received either digitally or in certificate form.
Comparison of SGBs with Physical Gold & Gold ETFs
Gold Sovereign Bonds are new-age investment vehicles for those interested in diversifying their portfolio with gold holdings. When comparing Sovereign Gold Bonds (SGBs) with physical gold and gold ETFs, it’s important to evaluate their distinct features, benefits, and limitations to determine which investment best suits your financial goals and preferences.
| Particulars | Physical Gold | Gold ETF | Sovereign Gold Bonds |
| Returns/earnings | Lower than the real return on gold due to making charges | Less than actual return on gold | More than actual return on gold |
| Safety | Risk of theft, wear/tear | High | High |
| Purity | The purity of gold always remains a question | High as it is in electronic form | High as it is in electronic form |
| Gains | LTCG after two years | Long-term capital gain post after two years | LTCG post two years. (No capital gain tax if redeemed after maturity) |
| As loan collateral | Accepted | Not accepted | Accepted |
| Tradability or exit formalities | Restrictive | Tradable on Stock Exchange | Can be traded and redeemed from the 5th year with the government |
| Storage expenditures | High | Negligible | Negligible |
Performance of Past Sovereign Gold Bonds
- Returns: Historically, SGBs have provided better returns than physical gold investments, closely reflecting the price of gold. Since their price is linked to the market price of gold, they can generally perform well when gold prices rise.
- Interest Payments: The interest payments are fixed so they can provide a steady income stream in addition to the potential appreciation of the gold price.
Refer below chart and table for historical performance of SGBs:
Price history of SGB for FY 2023-2024:
| Series | Month | Price per Gram |
| Series 1 | Jun-23 | Rs. 5,926 |
| Series 2 | Sep-23 | Rs. 5,923 |
| Series 3 | Dec-23 | Rs. 6,199 |
| Series 4 | Feb-23 | Rs. 6,263 |
Price history of SGB for FY 2022-2023:
| Series | Month | Price per Gram |
| Series 1 | Jun-22 | Rs. 5,041 |
| Series 2 | Aug-22 | Rs. 5,091 |
| Series 3 | Dec-22 | Rs. 5,409 |
| Series 4 | Mar-23 | Rs. 5,611 |
Price history of SGB for FY 2021-2022:
| Series | Month | Price per Gram |
| Series 1 | May-21 | Rs. 4,777 |
| Series 2 | May-21 | Rs. 4,842 |
| Series 3 | Jun-21 | Rs. 4,889 |
| Series 4 | Jul-21 | Rs. 4,807 |
| Series 5 | Aug-21 | Rs. 4,790 |
| Series 6 | Sep-21 | Rs. 4,732 |
| Series 7 | Oct-21 | Rs. 4,765 |
| Series 8 | Nov-21 | Rs. 4,791 |
| Series 9 | Jan-22 | Rs. 4,786 |
| Series 10 | Mar-22 | Rs. 5,109 |
Wrapping Up
Sovereign Gold Bonds or SGBs are a way to invest in virtual gold. Investing in these bonds can be a better investment option against physical gold.
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DISCLAIMER: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory.
