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How to buy SGB from the stock market?

This article shows you how to buy Sovereign Gold Bonds (SGB) from the stock market using your demat account.

How to buy SGB from the stock market?


Posted on 19 Jul 2023
Author: Sayan Sircar
6 mins read
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This article shows you how to buy Sovereign Gold Bonds (SGB) from the stock market using your demat account.

How to buy SGB from the stock market?

📚 Topics covered:

This article is a part of our detailed article series on the concept of Sovereign Gold Bond (SGB). Ensure you have read the other parts here:

What is a Sovereign Gold Bond (SGB)?

A Sovereign Gold Bond (SGB) is a piece of paper issued (in digital form) by the Government of India with the following features. For every unit of SGB purchased, the investor will:

  • buy it when issued at the current price of 1 gram of gold
  • get 2.5% interest (paid as 1.25% every six months; fully taxable at slab rates) on the invested amount
  • get back money as per the prevailing price of gold in eight years. Money received may be higher or lower than the purchase price and cannot be predicted in advance
  • if desired, sell it via the stock exchange five years after issuance
  • there are no capital gains taxes if held until maturity for eight years. Else, you will need to pay taxes based on the holding period

Related:
Frequently asked questions on Sovereign Gold Bonds (SGB): the complete guide

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Why should you buy SGB from the secondary market?

Secondary market is the stock market where SGBs trade like any normal share like TCS and Reliance. There are a few reasons why buying SGB from the secondary market makes sense:

  • Primary issuance of SGB happens in “tranches” as per the Government’s schedule. The secondary market is open on every trading day
  • Usually SGB is available at a discount to current gold price. More accurately, it is possible to calculate which bonds are trading lower than their intrinsic value (based on time to maturity, current price of gold and trading price of the bond) and buy only those
  • these bonds are tax-free if you hold them to maturity

How to search SGB in NSE website?

SGB NSE Search

The NSE home page, and every interior page, offers an easy to use search box at the top to locate any SGB . You just need to type the letters SGB in the box. If you click the link in the search result, a page like this (see the next section) opens.

How to read the SGB page in NSE website?

SGB NSE Page

Here is the data that NSE shows at a glance just like any other stock. Using the image above we see:

  • this bond matures in March 2025 and pays 2.5% interest/year i.e. 1.25% every 6 months
  • the ticker symbol is SGBMAR25. You need this value while buying or selling
  • the current price (or rather the last traded price) of the bond is ₹5,948.90
  • the current order book. You can buy up to 2 units at ₹5,948 and sell up to 10 units at ₹5,852
  • the bond was issued just before the date of listing which is 13-Apr-2017
  • the face value is the price at the time of issue which is ₹2,943. This bond pays 1.25% of this ₹2,943 which is ₹36.79 every 6 months in September and March

For understanding the discount to gold price, you can refer to the current 999 gold price from the IBJA website.

SGB trades in the stock market since people

  • might need money from old investments
  • they have made enough money since gold prices have risen
  • bonds often trade at a discount to intrinsic value

How to understand market depth while buying SGB?

SGB Market Depth

SGBs offer poor liquidity when they are trading. In the example here:

  • you can buy up to 3 units at ₹5,948
  • you can sell up to 10 units at ₹5,852
  • and so on

How much interest is received when you buy SGB from the secondary market?

Interest amount = 1.25% of Face Value every 6 months

In the example above, the bond will give 1.25% of this ₹2,943 which is ₹36.79. Irrespective of how much you buy the bond for today, you will get ₹36.79 every 6 months. The interest is not calculated on the current trading price of the SGB.

How to place order while buying SGB?

SGB Place Order

Once you have chosen any SGB, you can login to your stock broker website to place and order for the bond. In the image above, this will be a delivery type limit order.

Which SGB should you purchase out of all the ones that are trading?

You need to calculate which SGB is trading at a discount to intrinsic value relative to the current gold price. We have a full article here: Sovereign Gold Bond (SGB): Which Series is Best for You?.

Which are the SGBs currently available in the market?

SGB NSE Full List

The NSE website has the complete list of currently trading SGBs here: Market Watch - Sovereign Gold Bonds (SGB)

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This post titled How to buy SGB from the stock market? first appeared on 19 Jul 2023 at https://arthgyaan.com


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