How to Invest in Sovereign Gold Bonds?

Are you tired of the risks and hassles associated with investing in physical gold, but still drawn to the allure of the shiny yellow metal? Sovereign Gold Bonds (SGBs) offer a perfect investment solution, allowing you to enjoy the benefits of gold while stepping into the future of investing.

Gold has long been considered a symbol of wealth, prosperity, and financial security in India. While investing in gold involves the challenges of physical storage, the love for this metal remains strong and unending.

Considering these challenges, investors began exploring safe and alternative gold investment options, such as digital gold and sovereign gold bonds, apart from physical gold. However, how can you identify the safest gold investment, especially when looking for a hedge against economic instability? That’s where SGBs come in.

In this blog, we will cover everything you need to know about sovereign gold bonds, the best gold investment instruments—the meaning, advantages, and all about how to invest in them safely.

Read more about:

What Are Sovereign Gold Bonds?

Sovereign Gold Bonds (SGBs) are government-backed securities valued or denominated in grams of gold. They are issued by the Reserve Bank of India (RBI) under the Gold Monetisation Scheme introduced in November 2015. These bonds offer a safe, convenient, and secure way to invest in gold.

This investment option allows investors to cut down on the hassles associated with handling physical gold. The scheme enables individuals to take advantage of gold without the need to physically buy, store, or manage the metal, thus addressing the high demand for physical gold while providing a safer investment alternative.

How Do Sovereign Gold Bonds Work?

As mentioned earlier, these bonds are valued in grams of gold, so the issuance price is based on the prevailing market price of gold. For instance, the last subscription period was from February 12, 2024, to February 16, 2024, with an investment limit of 1 to 4 grams. The issue price per gram last time was ₹6,236, with an interest rate of 2.5% per annum payable semi-annually on the nominal value.

Each bond is issued in denominations of 1 gram of gold, making it accessible to a wide range of investors. At the time of purchase, investors are required to pay the issue price in cash. Once purchased, the bonds are credited to the investor’s demat account (a digital platform that helps investors hold shares, bonds, or debentures), and their value fluctuates with the market price of gold.

The bonds have a fixed tenure, typically 8 years, with an option to exit after the 5th year. Upon maturity, the bonds are redeemed in cash based on the prevailing market price of gold, providing the possibility of capital appreciation.

Who is Eligible to Invest in a Sovereign Gold Bond Scheme?

Every financial year, the Reserve Bank of India (RBI) issues SGBs in tranches on behalf of the central government, aiming to attract various investors. However, they have set the following eligibility guidelines:

Individuals: Indian citizens aged 18 and above can invest up to 4 kg in their name.
Joint Holdings: For joint investments, the limit of 4 kg will be applied to the first applicant only.
Hindu Undivided Families (HUFs): HUFs can also invest a maximum of 4 kg in SGBs, allowing families to collectively benefit from gold investment.
Non-Resident Indians (NRIs): NRIs are also allowed to invest in SGBs, but they cannot hold these bonds jointly with resident Indians.
Trusts, Universities, and Charitable Institutions: These entities can invest a maximum of 20 kg in SGBs, making it a suitable investment option for various organisations.

Below is a quick list of the minimum and maximum limits for investing in SGBs:

Individuals	4 kg per fiscal year
Hindu Undivided Families (HUFs)	4 kg per fiscal year
Trusts and Similar Entities	20 kg per fiscal year

How to Buy Sovereign Gold Bonds Online?

You can purchase Sovereign Gold Bonds (SGBs) both online and offline from the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or authorised banks and financial institutions that offer online services.

You will require an active trading account with a demat facility to buy SGBs through NSE or BSE. If you do not have an account, create one and follow these steps:

Create an Account: After creating the account, log in to your trading platform or the website of your chosen portal.
Find SBGs: Look for categories such as “Investment Products” or “Government Bonds” or a similar option dedicated to SGB.
Select Your Series: Check the issuance dates and availability of current offerings. Choose the series you wish to invest in and enter the number of bonds you want to purchase.
Apply Discount: Most online portals offer a discount of ₹50 per gram compared to the nominal price. Verify that this discount applies to your transaction.
Complete Payment: Proceed to payment and complete your purchase.
Review and Confirm: Review the details of the purchase, place the order, and wait for a confirmation email or message. The bonds will be credited to the demat account and you can track them through the trading portal.

The above are the steps to purchase SGBs through various options. Now let’s have a look at how to buy SGBs online (primary issuance) through net banking:

Log into the net banking account and choose the “eServices” option.
Select “Sovereign Gold Bond”.
Read the terms and conditions and choose “Proceed”.
Fill out the registration form and click “Submit”.
Enter the subscription quantity in the purchase form alongside the nominee’s details, review the details, and select “Submit”.

Some investors have doubts about whether it’s mandatory to purchase gold bonds online. While online purchases offer added convenience, including discounts or immediate processing, investors can also use other offline purchase options like scheduled commercial banks, Stock Holding Corporation of India Limited (SHCIL), and designated post offices. All these options offer the same benefits, and users can choose the method they prefer.

You may also like to read:

What Are the Advantages of Buying Sovereign Gold Bonds?

The following are some of the advantages of buying sovereign gold bonds:

Capital Appreciation Linked to Gold Prices: As the value of the bonds rises in tandem with gold prices, it provides attractive returns, allowing users to benefit from any increase in gold prices.
2.50% Annual Interest: SGBs pay fixed interest rates on the initial investment amount semi-annually, allowing for a consistent income stream in addition to capital appreciation.
Elimination of Risk and the Cost of Storage Applicable to Physical Gold: These bonds are issued in digital form, eliminating the need for physical purchase storage and lowering the risk of theft or loss.
Exemption from Capital Gains Tax if Bonds Are Held Till Maturity: These are tax-efficient investments, as while the interest earned on SGBs is taxable, the impact is usually less compared to the taxation of physical gold.
Liquidity and Tradable on Exchanges: SGBs can be traded on stock exchanges such as the NSE or the BSE, and they provide liquidity as well as the option to sell before maturity.
Flexible Tenure: These bonds provide investors with a flexible investment duration, allowing them to walk away from their investments after the fifth year, even though they have a tenure of eight years.

What Are the Risks Involved with Buying SGBs?

While these bonds benefit from being government-backed securities and carry minimal risk, they are still subjected to market risks like any other investments. Here are some of the main risks involved with the sovereign gold bond scheme.

Market Risk: SGBs are directly linked to the price of gold, so their value can fluctuate significantly. If the gold price declines during the investment period, the value of SGB holdings may decrease accordingly.
Interest Rate Risk: SGBs usually offer a fixed interest rate. If interest rates rise in the future, the opportunity cost of holding SGBs may increase, and you could earn a higher return on your investment by investing in other instruments like Treasury Inflation-Protected Securities (TIPS) and money market funds with higher interest rates.
Liquidity Risk: Selling SGBs before maturity may be less liquid than other financial instruments, as the secondary market trading volume can be lower. This means that it might be difficult to sell your SGBs at a fair price, especially if you need to sell them quickly.
Redemption Risk: If you choose to redeem SGBs before maturity, the current market price of gold may result in losses. This is because the redemption price of SGBs is linked to the price of gold on the day of redemption. If the price of gold is lower than the price at which you purchased the SGBs, you may incur a loss.

These are only a few risks associated with SGBs. It’s essential to consider these risks carefully before investing and to diversify your investment portfolio to manage risk. You might also consider seeking personalized assistance from a financial expert to navigate the complexities of SGBs and streamline your financial goals.

Read more about:

How Pentad Helps You Invest in Sovereign Gold Bonds?

Sovereign Gold Bonds (SGBs) provide a unique opportunity to invest in gold without the physical risks. Fixed interest returns and potential capital appreciation make them an excellent choice for diversifying your investment portfolio. However, not everyone is financially aware of investment plans and strategies.

As a leading financial service provider, Pentad Securities is committed to helping investors gain a better understanding of various financial plans and enabling them to select the best investment instruments, plans, and solutions based on their financial capabilities.

Our team of financial experts is prepared to assist our valued investors in participating in various investment strategies, including sovereign gold bond schemes. With Pentad, investors can confidently navigate the complexities of the SGB market, making well-informed decisions that align with their financial goals.

Whether you are experienced or new to investment plans, we are here to help you select appropriate gold investment plans that provide a strong blend of safety, income, and growth opportunities. Contact us today to learn more about our investment plans or schedule an appointment to discuss your finances.