FAQ: Sovereign Gold Bond (57)
Please use the Find feature of your browser to look for specific items of interest.What is a Sovereign Gold Bond?
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
Are SGB available for trading in the secondary market only after 3 years of issue?
SGB are available for trading in the secondary market immediately after issue. You can check the list of SGBs currently trading in the NSE SGB page.
⬆️ Back to topCan an NRI buy SGB from the share market?
No. NRI status will be captured in the KYC of the demat/trading account and the SGB purchase will be blocked at the time of settlement.
⬆️ Back to topCan I buy SGB every month?
You can buy SGB from the share market anytime. The whole amount that you can buy in a year (April to next year March) is capped at 4,000 units of SGB i.e. equivalent to 4Kg of gold.
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Can I hold SGB for 20 years?
SGB matures in 8 years after issuance. However, once it matures, you can either buy new SGB if RBI has a new issue open or buy more from the stock market. You can use this technique to buy small amounts of gold over time for a child’s wedding.
⬆️ Back to topCan NRIs invest in SGB?
Fresh investments in SGB is not allowed for NRIs. Residents who have become NRI may continue holding existing SGB until maturity or may exit via the secondary market. NRIs cannot repatriate the interest and maturity amount.
⬆️ Back to topCan SGB be converted into physical gold on maturity?
RBI will give you cash in your bank account on SGB maturity. Since that amount will be equal to the current market price of gold, you can use the amount to buy gold on your own. RBI will not give you gold directly.
⬆️ Back to topCan SGB be used to get loans?
Banks and NBFCs, at their discretion, may allow SGBs to be used as collateral for loans. The loan-to-value (LTV) ratio will be as per the LTV of gold loans.
⬆️ Back to topCan SGB have nominees?
During filling out the application form, there is an option of adding nominee details. This nominee should be a resident Indian. In case the nominee is not a resident Indian at the time of death, the nominee must:
- hold the SGB until maturity or exit as per normal exit rules
- NRIs cannot repatriate the interest and maturity amount
How is SGB taxed?
Tax on SGB is calculated like this:
- 2.5% interest is taxed at your slab rate (10%, 20% or 30%)
- if you sell on the stock exchange then capital gains tax is to be paid: at slab rate if held for less than 3y, at 20% post indexation for longer periods
- zero tax if the bonds are redeemed after the first five years has passed
- zero tax if the bonds are held to maturity for the full 8 year term
How is the interest on SGB calculated?
The 2.5% interest on SGB is calculated on the issue price. This interest is paid at the rate of 1.25% every 6 months on the issue price and is taxable. If you buy SGB from the secondary market, still the interest is calculated on the issue price only.
⬆️ Back to topHow is the price of SGB determined at issue?
As per RBI, the price of SGB is fixed in Indian Rupees based on the simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited for the last three working days of the week preceding the subscription period. Retail investors get a ₹50/unit discount if they apply online. RBI will issue a Press Release stating the Bond’s issue price before the new issue opens.
⬆️ Back to topHow much interest is received when you buy SGB from the secondary market?
Interest amount = 1.25% of Face Value every 6 months
To understand this, let’s consider that an SGB is trading at ₹₹5,948 and the issue price was ₹2,943
In the example above, the bond will give 1.25% of this ₹2,943 which is ₹36.79 every 6 months. Irrespective of how much you buy the bond for today, you will get only ₹36.79 every 6 months. The interest is therefore calculated on the current trading price of the SGB.
⬆️ Back to topHow to buy SGB from the stock 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
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How to convert physical SGB purchased from banks to demat form?
You need to submit a dematerialisation request to the bank which will then present that request to the e-Kuber portal of RBI. You need to provide an attested copy of the Client Master Report (CMR) along with the request.
⬆️ Back to topHow to dematerialise SGB bought from the Post Office?
You can dematerialise SGB bought from the Post Office by contacting the head post office of your city. You will need the Client Master List (CML) from your DP for this purpose and submit that along with the dematerilisation request.
⬆️ Back to topHow to exit the investment?
After 5 years have passed post-issuance i.e. in the 5th, 6th or 7th year, the investor may approach the same channel from where they purchased the bond. As long as the application is processed at least a day before the coupon payment date, the maturity amount, based on the current gold price, will be credited to the investor’s account.
⬆️ Back to topHow to get SGB alloted to demat account while buying through Netbanking?
To get SGB allotted to demat account while buying through Netbanking, you need to mention demat account number and other details while making the purchase. You need to be careful though in case you miss the option since purchasing without demat might be the normal option for your bank.
⬆️ Back to topHow to invest in SGB in primary issuance?
Primary issuance happens in tranches with RBI announcing new dates for SGB. The application, mandatorily based on PAN number, may be made via resident Indians, not NRIs, by filling the application form online/offline and depositing the form with issuing banks, SHCIL offices, designated Post Offices or agents. There is a 50/gm discount on online application. A Demat account is not needed. Some banks like SBI allow fully online application via Netbanking. Investors will be given an unique investor Id based on their PAN.
⬆️ Back to topHow to know the value of my SGB since NSDL CAS does not show it?
Statements from NSDL or CDSL may not always show the current SGB value. If SGB was a share like Infosys, we would have got the correct price from NSE or BSE. However, SGB traded prices are very different from underlying gold prices due to demand and supply. Hence, the right way to know the price of SGB, if you are holding to maturity is to check gold prices on the IBJA website.
⬆️ Back to topHow to pay for SGB at issue time?
Either cash (upto 20,000) or demand draft, cheque or electronic payment is accepted for applying for SGB issuance.
⬆️ Back to topHow to redeem SGB if purchased from the secondary market?
Investors have two options for redemption in case they purchase SGB from the stock exchange. They can wait for the SGB to mature when they will get the maturity value automatically in their bank account linked to their demat account. They can alternatively sell it again in the stock exchange anytime before maturity with the caveat that they may not get their desired price since volumes are low. Selling SGB in the stock market will attract capital gains tax.
⬆️ Back to topHow to report interest from SGB while filing tax return?
Interest income from SGB must be shown under “Income from other sources” while filing income tax return. This interest income is taxable at the investor’s slab rate.
⬆️ Back to topHow to transfer SGB to a family member like a son?
If the bond is purchased via Netbanking, first convert it to demat form by putting a request to the bank. Once the SGB is in the demat account, transfer it to the destination demat account via off-market transfer mechanism using Delivery Instruction Slip (DIS). There is no tax at the time of transfer to a family member.
⬆️ Back to topHow to transfer SGB?
SGB can be gifted/transferred to other eligible investors by filling out a form or via selling on the stock exchange. However, such transfers lead to capital gains tax.
⬆️ Back to topHow to use SGB as collateral for loans?
Banks and NBFCs, at their discretion, may allow SGBs to be used as collateral for loans. The loan-to-value (LTV) ratio will be as per the LTV of gold loans.
⬆️ Back to topIf there is a capital loss from SGBs, can that offset capital gain?
If gold price falls below the SGB issue price, then it is a capital loss. In such a case, offset against capital gains or carry forward is available for tax filing purpose.
⬆️ Back to topIs a demat account mandatory for investing in SGB?
Demat account is not mandatory for investing in SGB during the primary issuance phase when RBI runs a week-long subscription window. You can buy via NetBanking and will later get an email from RBI’s portal post allotment. Interest every six months and redemption amount at the time of maturity will be credited to the same maturity. If you miss the primary issuance window, then you can only buy SGB via the stock market and for that a demat account is needed.
⬆️ Back to topIs a demat account needed to invest in SGB?
Primary SGB issuances do not require demat account since you can apply using your bank. However, if you are buying from/selling in the secondary market, the trade goes like any other stock and needs a demat account.
⬆️ Back to topIs allotment guaranteed during primary issuance?
If the application is valid and the applicant is a resident Indian with PAN number, then allotment will happen. There is no bidding like RBI bonds or book-building like IPO.
⬆️ Back to topIs it possible for an NRI to be a nominee for an SGB bond?
NRIs cannot hold SGB. But in the case of death and an active nomination, an SGB will get transferred to a demat account linked to an NRO/NRE account and interest paid. Or if the bonds were not held in demat account, the beneficiary account details will be updated to an NRO account. The SGB interest and redemption amount cannot be repatriated.
⬆️ Back to topIs joint holding of SGB allowed?
Yes, the application form can be filled in join holding mode.
⬆️ Back to topIs my money safe if I invest in SGB?
The government guarantees that on SGB maturity date, you will get back money based on the current gold price. This might be higher or lower than what you invested. SGB is therefore, not a capital guaranteed product. If you have one unit of SGB and gold price is 4000/gm at the time of maturity, you will get only 4000 irrespective of how much you paid at the time of SGB issuance or from the secondary market. The 2.5% interest is based on the issue price and not current price of gold.
⬆️ Back to topIs SGB better than buying physical gold?
SGB, being an electronic instrument, does not have the storage or safety issues of physical gold. There is no GST on SGB purchases. Investors get a 50/gm discount if they purchase SGB online, interest every 6 months and pay no storage charges or expenses like TER in gold mutual funds/ETFs. If their purpose is to buy physical gold any time after the maturity of SGB, it is a better option compared to physical gold since the government guarantees that you will get back the current price of gold on the maturity date.
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Is SGB good for long term?
SGB is currently offered for 8 years maturity. There is no guarantee that SGB as a product will exist in the future once the currently active issues mature. If the plan is to hold gold for decades, you need to find an alternative investment that tracks the price of gold if SGB is not available. If SGB is available once your investment matures and your purpose is served, then you can roll your investment into another series of SGB.
⬆️ Back to topIs there capital gains tax on SGB received as a gift?
When gifting SGB, please note the date of purchase and price of purchase in the gift deed. These are used for determining capital gains tax when the SGB is sold. Normally, if SGB is held until maturity, there is no capital gains tax. However, there could be tax if SGB is transferred to another person and then sold based on the holding period.
⬆️ Back to topShould you buy SGB from the secondary market?
SGB can be purchased from the secondary market via the stock exchange if you wish to match a requirement for gold purchase with the SGB maturity date. Also, sellers desperate to exit SGB may offer these bonds at attractive prices. You need to check the current price of SGB vs the current India Bullion and Jewellers Association Limited gold price and also the present value of the 2.5% coupon payments.
⬆️ Back to topShould you invest in an open SGB issue?
You should consider SGB investment in terms of overall portfolio allocation to gold. You can go ahead if you need physical gold when the SGB matures or a bit later. If you are investing as a part of your investment portfolio then be mindful you cannot rebalance with SGB since exits can happen after 5 years and only via selling in stock exchange where you may not get a good price.
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Is SGB tax free if purchased from secondary market?
Yes, if you hold it until maturity.
⬆️ Back to topWhat are the benefits of SGB?
SGB is digital (no storage/theft risk like physical gold), guaranteed by the government (to get back money as per the current value of gold) and also the only gold investment that provides interest income (2.5%, taxable). SGB can be used as loan collateral or margin trading (after appropriate haricut is applied).
⬆️ Back to topWhat does it mean if SGB trades lower than the current gold price?
Sellers are trying to exit the bond since they need money for other reasons or no longer have a positive outlook on gold. This is basic demand-supply that applies to everything the trades in the stock exchange and is visible more in case of thinly traded securities like bonds. If you are not willing to exit, you can ignore the current SGB price relative to gold since the government guarantees that you will get money back at the prevailing gold price on the maturity date. If you are looking to buy SGB, you can find good opportunities to purchase in such cases.
⬆️ Back to topWhat happens if the SGB holder dies without nomination?
The legal heirs must approach the Receiving Office (of the bank) or the Depository (in case of demat) with a succession certification. The bonds will then be transferred.
⬆️ Back to topWhat happens if we buy SGB from a bank and the bank goes bankrupt?
SGB is held with RBI and is guaranteed by the Government of India. There is no role of the bank beyond letting you apply for SGB. Once you apply, you will get a Certificate of Holding from RBI. In case the bank shuts down, you can approach RBI with the account number of your new bank.
⬆️ Back to topWhat happens if we buy SGB via broker and the broker goes bankrupt?
SGB is held with RBI and is guaranteed by the Government of India. There is no role of the broker beyond letting you apply for SGB. Once you apply, you will get the SGB allotted to your demat account which is held with NSDL or CDSL.
⬆️ Back to topWhat happens on redemption date?
On redemption date, rupees will be sent to the bank account of the bond holder equal to units of SGB held times the redemption price. The redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. There is no TDS. There is no capital gains tax if held to maturity. The last interest payment is included in the redemption amount.
⬆️ Back to topWhat happens when a SGB bond-holder dies?
The nominee of the SGB holder must approach the respective Receiving Office (Scheduled Commercial Banks excluding RRBs, SHCIL, designated Post Offices and exchanges like NSE/BSE) with their claim. In the absence of nomination, the SGB holding becomes a part of the estate and is dealt with like all other assets.
⬆️ Back to topWhat has been the historical issue price of SGB in India?
SGB has been issued in India since 2015 at a price of ₹2600/unit or more. The complete history is in the article below.
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What is the minimum and maximum limits in investing in SGB?
SGB is issued and traded in units equivalent to 1 gram of gold. The minimum and maximum limits are applicable as:
- 1gm to 4Kg for individuals and HUF
- for joint holders, the limit is applicable to the first holder
- the limit includes primary issuances and trades via secondary markets
- the limit is enforced on the basis of the financial year i.e. 1st Apr to 31st Mar At a gold price of ₹5000/gm, these limits are ₹5000 to ₹2 crore per financial year
When does the SGB start trading in the stock exchange?
SGB starts trading on stock exchanges within a fortnight of issuance on a date notified by the RBI.
⬆️ Back to topWhen will the next SGB tranche come?
Unless a date is declared by RBI or the Finance ministry, we can only speculate which is not of any value. If needed, you can consider buying existing SGB from the stock exchange. You can click this link to check the latest news on this topic of next SGB issuance dates.
⬆️ Back to topWhere do I get the latest value of my SGB?
SGB trades in the stock exchange but that price is very different from the underlying gold price. There is some amount of complexity in valuing the SGB since there is the interest component as well. If you are holding to maturity, just use the current price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited. If you are planning to sell, then the latest price of SGB currently trading in NSE will give you an idea of the price you can sell it at.
⬆️ Back to topWhich gives higher return SGB vs gold ETF or MF?
Gold ETF and MF have tracking error due to storage costs, fund expenses and other costs. Their price is expected to lag that of gold. SGB being a pure digital instrument with 2.5% interest and guaranteed return as per gold price, gives a return slightly higher than gold price and hence gold ETF/MF.
⬆️ Back to topWhich IBJA rate is used to calculate the price of SGB?
The Gold 999 (PM Price) value available in the IBJA website is used to calculate the issue or maturity price of SGB. For example, if you read the RBI Press Release for the Nov 2023 SGB tranche maturity, it refers to “the price for the final redemption due on November 30, 2023 shall be ₹6132/- (Rupees Six thousand one hundred thirty-two only) per unit of SGB based on the simple average of closing price of gold for the week November 20-24, 2023.” As per IBJA website, the closing prices for these dates, from 24th November looking backwards were 61,437, 61,394, 61,616, 61,250, 60,888 (or 10 grams) whose average is ₹61,317 for 10 grams or ₹6,132 for one gram.
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Who can invest in SGB?
Indian residents like individuals (including minors under a guardian), HUF, trusts, universities and charities can invest in SGB. NRIs cannot invest in SGB. Residents who have become NRI may continue holding existing SGB until maturity or may exit via secondary market. Fresh investments in SGB is not allowed for NRI.
⬆️ Back to topWho should invest in SGB?
SGB is well suited if
- you need to purchase physical gold at the time of maturity
- you get a decent discount to the current gold price while purchasing SGB in the secondary market via the stock exchange
- your portfolio allocation to gold is high enough that you are not affected by the 5-year lock-in when rebalancing
Why is SGB issued?
SGB issuance aims to reduce gold imports since the SGB is not backed by physical gold. Instead, the government gives two guarantees on SGB: payment of 2.5% interest and returning money as per the prevailing gold price at maturity. However, as evident from the description, the principal is not protected since gold prices can fall below the value at the time of issuance.
⬆️ Back to topWill I get interest if I buy SGB from secondary market?
Yes you will on the next coupon payment date. The interest, which is taxable, is equal to 1.25% of the issue price and again thereafter every 6 months. SGB price includes the accrued interest from the last coupon payment date to the trade date when you buy.
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