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Sovereign Gold Bond Scheme

Last Update Date : April 30, 2019
Estimated Read Time: 6 min

Sovereign Gold Bond

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.

What is Sovereign Gold Bond (SGB)?

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.

Eligibility

You are legally authorised to purchase SGB if you are any one of the following:

  • An Indian resident, as per the Foreign Exchange Management Act, 1999
  • Individual
  • Hindu Undivided Family
  • Trust
  • University
  • An institute of charity
  • A minor under the guidance of a guardian

Benefits of Sovereign Gold Bond scheme

This scheme gives you the following benefits:

  • It is a trusted source of investment, as it is backed by the Government of India.
  • One can steal your physical gold, but no one can steal your SGB because it comes in paper format.
  • When you invest in a gold ornament, you not only pay for gold but for making charges and added impurities as well. However, when you invest in SGB, you only pay for 999 pure gold.
  • It is a better investment than gold ETF. If you purchase gold ETF, an approximate of one per cent of the value in summation with the charges for demat is deducted from the gold value. However, if you purchase SGB online, you get the bond for Rs 50 less than the average of previous week’s gold value.
  • Taxes are applicable over the gold that you purchase, but on purchasing SGB you get tax benefits on the amount you receive post maturity of the Bond. However, the interest that you receive every six months after the lock-in period of 5 years is subject to tax depending upon your tax bracket.
  • You get the freedom to invest in Mutual Funds or the funds that trade on the gold exchange.
  • You can also withdraw the amount of the bond after the completion of the lock-in
  • Just like physical gold, you can gift SGB to a person by transferring the bond on their name, if they satisfy the eligibility criteria.

How to invest?

Now that you have decided to invest in SGB, let us look at the procedure to invest.

  • Step-1: Approach your nearest authorised bank, post office or any agent.
  • Step-2: Fill the required forms.
  • Step-3: Complete your KYC by attaching the necessary documents.
  • Step-4: Choose your mode of payment. The available modes of payment are cheque, cash up to Rs 20,000, electronic fund transfer and demand draft.
  • Step-5: Submit the forms at the branch. You will receive an acknowledgement receipt from there.
  • Step-6: RBI will upload your data through its e-Kuber system. Once done, it will send confirmation of the same to you.
  • Step-7: RBI will generate and send your Holding Certificate to a bank. The bank will forward the same to you.

Limit of investment

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 InvestorMaximum Investment Limit
Individual4 kgs
HUF4 kgs
Universities and Trust20  kgs

Forms and Documents Required under Sovereign Gold Bond Scheme

To Subscribe

You must file three forms for initial subscription as explained below:

  • File Form A as the main subscription form. Provide your personal details and mention subscription amount in the Form.
  • File Form B as the acknowledgement form. Provide subscription details in the Form.
  • File Form D along with the aforementioned forms to nominate a person on your behalf

To Cancel the Nomination

File Form E to cancel the nomination of a person

To Add a New Nomination

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.

To Change Address, Name, Account Number or any Other Purpose

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.

Loan against bonds

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.

Penalty for Premature Termination of Sovereign Gold Bond Scheme

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.

Comparison table (Physical Gold, SGB, Gold ETF)

FactorsPhysical GoldGold ETFSGB
Tax benefitNoneNoneYes, on maturity
Minimum investmentNo Limit1 gram of gold1 gram of gold
Interest earnedNoneDepends on the fund performanceFixed interest (2.50% of the principal value)
Maintenance costHighNoneNone
Storage expenseHighNoneNone
Deductions on gold valueMaking chargesFund processing charge (1%) + Demat chargesNone

Risks of Investment

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.

People also ask

Q: Is joint holding of Sovereign Gold Bond allowed?

A: Yes, it is allowed.

Q: Where can I get the application form?

A: Application forms are available in the authorised banks, post offices and BSE/ NSE.

Q: What documents are required for KYC?

A: You will require documents like PAN/ Aadhaar card/ Passport/ TAN/ Voter ID card.

Q: Can I buy a fixed weight of gold every year and for all my family members?

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.

Q: Is the limit applicable if SGB is bought from Exchanges?

A: Yes, it is applicable.

Q: What guarantee do I have of the allotment?

A: If you produce all the required documents and are eligible to purchase an SGB, you will definitely receive the allotment.

Q: Who would provide the Customer Service in case of any requirement?

A: The Receiving Office i.e. the place where you have applied for the bond will provide the Customer Service.

Q: When will I get the Holding Certificate?

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.

Q: At what price will I buy the bond?

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.

Q: What will I have to do during the redemption?

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).

Q: What is the procedure for premature redemption?

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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Niteesh Singh
Niteesh is a Tax Researcher and Content Lead at H&R Block (India). He holds an MBA with a specialisation in BFSI domain. In his career spanning over six years, he has helped thousands of people understand taxes in a simple and effective manner. Outside work, Niteesh is an astronomy geek who is also involved in wildlife conservation activities.

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