A Beginner's Guide To Investing In Sgb In India

Sovereign Gold Bonds (SGBs) are a popular investment choice in India. They are financial instruments issued by the Government of India and backed by the RBI, providing a secure and convenient method for investing in gold. SGBs are an attractive option for those looking to diversify their portfolios and protect their wealth, as they offer benefits such as safety, interest income, capital appreciation, tax advantages, and liquidity. With a minimum investment of one gram of gold, SGBs can be easily purchased through designated banks and online platforms, making them accessible to a wide range of investors.

How to buy SGB online

Sovereign Gold Bonds (SGBs) are a safe and convenient way to invest in gold, offering benefits such as safety, interest income, capital appreciation, tax advantages, and liquidity. They are issued by the Government of India and can be purchased online through designated banks and other platforms. Here's a step-by-step guide on how to buy SGBs online:

Step 1: Log in to Your Net Banking Account

Access your net banking account by visiting the website of your designated bank, such as SBI, HDFC Bank, or ICICI Bank. You can also use the mobile banking application provided by your bank.

Step 2: Navigate to the 'eServices' Section

Once you are logged in, look for the 'eServices' or a similar section on the homepage or main menu. Within this section, locate the option for 'Sovereign Gold Bond', 'SGB', or 'Gold Bonds'.

Step 3: Review the Terms and Conditions

Before proceeding, carefully review the terms and conditions provided for investing in SGBs. This is important to understand the details of your investment, including any applicable restrictions, fees, or benefits.

Step 4: Complete the Registration or Application Form

Provide the required information in the registration or application form. This may include personal details, the quantity of subscription in grams, and nominee details. Make sure to review your entries for accuracy before proceeding.

Step 5: Submit the Form and Finalize Your Investment

After completing the form, click on the 'Submit' button to finalize your investment. You may then proceed with the payment through your preferred mode, such as net banking or demand draft.

Other Ways to Buy SGBs

In addition to online purchases through designated banks, there are alternative ways to invest in SGBs:

• Directly from the RBI Retail Direct website
• Through platforms like Upstox, Zerodha Kite, Groww, etc.
• Stock exchanges like the National Stock Exchange of India and Bombay Stock Exchange
• Designated post offices
• The Stock Holding Corporation of India Limited (SHCIL)

How to buy SGB in the secondary market

Sovereign Gold Bonds (SGBs) are a safe and convenient method for investing in gold, offering benefits such as safety, interest income, capital appreciation, tax advantages, and liquidity. They are particularly suitable for long-term investors aiming for stability and protection against underperforming assets.

If you miss the chance to buy SGBs during the primary issuance, you can invest in them through the stock exchanges—the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Here's how to buy SGBs in the secondary market:

Log in to your broker's website or app:

Use your broker's website or mobile application to access your account. This will allow you to place bids and review relevant information about the SGBs.

Navigate to the "Government Securities" section:

Within your broker's platform, locate the "Government Securities" or similar section. This is where you will find Sovereign Gold Bonds listed as an option for investment.

Choose "Sovereign Gold Bonds" and place your bid:

Under the "Government Securities" section, select "Sovereign Gold Bonds." Here, you will be able to view the current price and other relevant details. Decide on the quantity you wish to purchase and place your bid by clicking on the "Place Bid" or similar option.

Confirm your order:

After placing your bid, carefully review the details of your order, including the quantity and price. Once you are satisfied, submit your order by confirming it.

Wait for the order processing and allocation:

After placing your order, wait for the specified number of days for the SGB units to be allotted and displayed in your holdings. The timeline for this process may vary, as mentioned in the sources.

Understand the tax implications:

Be mindful of the tax implications when investing in SGBs. While there is no capital gains tax if you hold the bonds until maturity, selling before maturity attracts taxation. Short-term gains are taxed at the highest rate, while long-term gains offer a choice between a fixed tax rate of 10% or 20% with indexation benefits.

Consider the liquidity factor:

When buying SGBs from the secondary market, assess the liquidity factor. This will influence how easily you can sell the SGBs if the need arises. Illiquid SGBs may be challenging to sell quickly and at a desirable price.

Evaluate the maturity period:

When purchasing SGBs in the secondary market, consider choosing those with a longer residual maturity period. These often trade at a better discount compared to those with a shorter maturity period.

Compare the discount to the spot price of gold:

SGBs typically trade at a discount to the spot price of gold due to low trading volume. Compare this discount across different options to make an informed decision.

Assess your investment goals and risk tolerance:

Before investing in SGBs, carefully consider your investment goals and risk tolerance. Evaluate how SGBs align with your financial objectives and the level of risk you are comfortable with.

Who is eligible to invest in SGBs

Sovereign Gold Bonds (SGBs) are issued by the Government of India and are a safe and convenient alternative to investing in physical gold. The Reserve Bank of India (RBI) has set out clear guidelines on who is eligible to invest in SGBs.

The following entities are eligible to buy/invest in SGBs:

• Individuals subscribing on behalf of a minor
• Hindu Undivided Family (HUF)
• Charitable organisations
• Trusts
• Universities

It is important to note that NRIs, PIOs, OCIs, and entities like firms, LLPs, and private limited companies are not eligible to invest in SGBs.

The minimum investment in SGBs is 1 gram of gold, and the maximum limit depends on the type of investor. For individual investors and HUFs, the maximum investment is 4 kg of gold. Meanwhile, the maximum limit for charitable organisations, trusts, and universities is 20 kg of gold.

Minimum and maximum investment limits

The minimum investment in SGBs is one gram of gold at the prevailing gold rate prescribed by the RBI. The minimum investment is the same across different methods of purchasing SGBs, whether it be through designated banks, online platforms, or post offices.

The maximum investment limit depends on the type of investor. For individual investors and Hindu Undivided Families (HUFs), the maximum limit is 4 kilograms of gold. Meanwhile, for charitable organisations, trusts, universities, and similar entities, the upper limit is 20 kilograms of gold. The 4-kilogram limit for individual investors applies only to the first holder in the case of joint holding.

Advantages of buying SGBs

Sovereign Gold Bonds (SGBs) are a unique investment opportunity, offering a range of advantages for investors. Here are some key benefits of buying SGBs:

Security and Convenience

SGBs offer a secure and convenient method of investing in gold. They are backed by the Government of India, providing a shield against default risks. The digital nature of SGBs eliminates the storage concerns associated with physical gold, removing the need for bank lockers and the associated security risks and maintenance charges.

Interest Income and Capital Appreciation

SGBs provide an opportunity for interest income, with a fixed interest rate of 2.5% per annum. They also offer potential for capital appreciation, with the benefit of being tax-free. This makes SGBs a great option for long-term investors seeking stability and protection against underperforming assets.

Tax Advantages

SGBs offer tax advantages, such as exemption from capital gains tax. The capital appreciation generated at redemption is completely tax-free. Additionally, there is no Goods and Services Tax (GST) or making charges involved when buying or selling SGBs.

Liquidity and Loan Collateral

SGBs can be easily traded on recognised stock exchanges, providing liquidity to investors. They can also be used as collateral to secure loans from financial institutions, as stipulated by the Reserve Bank of India's Loan-to-Value (LTV) regulations.

Hedge Against Inflation

Gold is often seen as a hedge against inflation, and SGBs are no exception. The price of gold tends to rise during periods of high inflation, making gold-based investments a way to protect against the decreased purchasing power of currency.

Indexation Benefits

Long-term capital gains from SGBs are subject to indexation benefits, which help investors adjust their investment's purchase value by taking inflation into account. This allows for a more accurate calculation of the real capital gain.

With these advantages, SGBs provide a compelling opportunity for investors to diversify their portfolios and gain exposure to the value of gold while enjoying the benefits of security, convenience, and potential financial gains.

Frequently asked questions