Did you ever think of investing in gold but high making charges, or the risk of theft stopped you? Well, if that’s the case, Sovereign Gold Bond (SGB) is the right choice for you. Read this comprehensive guide by H&R Block.
Sovereign Gold Bonds are alternatives to the physical form of gold with an assured interest rate. They are gold in the form of paper or demat, issued by RBI on behalf of the Government of India. You can buy them from authorised banks, Post Offices or Stock Holding Corporation of India Ltd. which is either NSE or BSE.
You are legally authorised to purchase SGB if you are any one of the following:
This scheme gives you the following benefits:
Now that you have decided to invest in SGB, let us look at the procedure to invest.
You can make a minimum investment of 1 gram of gold. The maximum investment limit is different for different categories of investors as shown in the table given below:
|Type of Investor||Maximum Investment Limit|
|Universities and Trust||20 kgs|
You must file three forms for initial subscription as explained below:
File Form E to cancel the nomination of a person
File Form III to choose a new nominee. If you did not choose a nominee initially, filing this form will be considered as the case of original nomination.
Write a request letter and submit it to the bank/ post office/ agent who gave you the bond. They will verify your details and process your request. If required, they will ask you to submit certain documents. They will enter your request in the RBI portal after which it will take effect.
You can use these bonds as collateral for loans. However, the final decision of granting the loan lies with the financing agency or the bank. To determine the value of SGB as security, the price of gold announced by RBI at the time of loan application is used.
You are not required to pay any penalty for premature termination of the bond. However, you will pay TDS in such a case depending upon your tax bracket.
|Factors||Physical Gold||Gold ETF||SGB|
|Tax benefit||None||None||Yes, on maturity|
|Minimum investment||No Limit||1 gram of gold||1 gram of gold|
|Interest earned||None||Depends on the fund performance||Fixed interest (2.50% of the principal value)|
|Deductions on gold value||Making charges||Fund processing charge (1%) + Demat charges||None|
Depending on the price of gold at the time of maturity, you may gain or lose a certain amount of money. However, the quantity and purity of gold will remain the same.
A: Yes, it is allowed.
A: Application forms are available in the authorised banks, post offices and BSE/ NSE.
A: You will require documents like PAN/ Aadhaar card/ Passport/ TAN/ Voter ID card.
A: Yes, until the weight of gold is under the permissible range, it can be bought. If the family members fulfil the eligibility criteria, they can hold the bond.
A: Yes, it is applicable.
A: If you produce all the required documents and are eligible to purchase an SGB, you will definitely receive the allotment.
A: The Receiving Office i.e. the place where you have applied for the bond will provide the Customer Service.
A: You get the Holding Certificate on the date of issuance from the place where you submitted the application form. You can also get it through email from the RBI if you provide your email id while applying.
A: The India Bullion and Jewelers Association Limited provides the closing price of gold of 999 purity. The average closing price of the last three business days (of the previous week) is calculated. This is the price at which you will buy the bond.
A: You will be notified about the maturity amount a month prior to the maturity date. On the date of maturity, the amount will be transferred to your bank account (as mentioned in the application form).
A: Contact the place from where you purchased the SGB and make a request for premature redemption. Do it 30 days prior to the maturity date because such a request is not entertained on the coupon payment date.
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