What is a Post Office Savings Scheme?
November 14, 2018
Small Industries Development Bank of India
November 15, 2018

Sovereign Gold Bond Scheme

Last Update Date : November 15, 2018

sgb scheme

Did you ever happen to think of investing in gold but the cost of 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. It is gold in form of paper, issued by RBI on the behalf of the Government of India. You can buy them from authorised banks, Post Offices or Stock Holding Corporation of India Limited which is either NSE or BSE. Instead of owning gold physically, you would have it in the form of paper or demat as per your choice.

Eligibility

If you or your organisation fit into any of the following options, you are legally authorised to purchase SGB.

  • As per the Foreign Exchange Management Act 1999, an Indian resident
  • Individual
  • Hindu Undivided Families
  • Trusts
  • Universities
  • An institute of charity
  • A minor under the guidance of a guardian

Advantages and Features of SGB scheme

As the Government of India backs the scheme, it becomes a trusted source of investment. As compared to Physical Gold, SGBs can never be stolen as they are in paper format. While making an ornament of gold, a huge amount of making charges are deducted, and this gives the lesser value of gold in our hand. SGBs have no charges deducted over their purchasing. You would pay for 999 purity of gold wherein no question of the purity could be raised as the Government of India provides the bond.

If you purchase gold ETF, an approximate of 1% of the value in summation with the charges for demat will be deducted from the gold value. However, if you purchase SGB online, from the average of previous week’s gold value, Rs. 50 will be deducted, and you will receive the bond at that price. This means if the average of previous week gold prices is Rs. 2500 per 10gm, the investor would purchase the SGB at Rs. 2450. Beneficial, isn’t it?

Taxes are applicable over the gold that you purchase, but on purchasing SGB you will receive the benefit over taxation as on maturity, no tax will be charged over the amount. However, the interest that you receive every six months after the lock-in period of 5 years will be subject to tax depending upon the tax bracket you fall into.
You have the freedom of investing into Mutual Funds or the funds that trade over the gold exchange. As the lock-in period of SGB is 5 years, you could only redeem the units of SGB after that span. This can be done only during the interest-receiving time, i.e. on the dates, you receive your interest amount.
You can also withdraw the amount of the bond after the completion of the lock-in period.

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 dive into the procedure to invest.

  • Approach your nearest authorised bank, post office or any agent.
  • Fill the required forms.
  • Complete KYC requirements by attaching the necessary documents.
  • Choose your mode of payment. The available modes of payment are cheque, cash up to Rs. 20,000, electronic fund transfer and demand draft.
  • Submit the forms at the branch. You will receive an acknowledgment receipt from there.
  • With the e-Kuber system of RBI, your data will be uploaded in the database and confirmation for the same will be provided.
  • RBI will then generate your Holding Certificate which will be downloaded by the bank and sent to you.

Limit of Investment

The minimum investment that you can make is of 1-gram gold whereas the maximum limit is different in the following mentioned respect:

  • For an individual – 4 kg
  • For HUF – 4 kg
  • For universities and trust – 20 kg

Forms and Documents Required

Initial Subscription

Form A: In this form, you will have to mention your subscription amount and basic personal details.
Form B: This form will be provided after you submit Form A along with other required documents.
Form D: This form must be submitted with Form A. You have to fill all the details of the nominee in this form.

Cancelling Nomination

Form E must be filled to cancel the nomination of a person.

Adding a New Nomination

Form III must be filled-in with the details of the nominee. In case of a fresh submission, it will be treated as the case of original nomination as per the guidelines of RBI.

Changing Address, Name, Account Number, Etc.

You would have to write a request letter and submit it to the bank/post office/agent you had taken the bond from. They will then process your request after verifying the details, and if necessary, you would be asked to submit certain documents. Your request will then be entered in RBI portal after which it will take effect.

Loan against Bonds

Talking about general eligibility, these bonds can be used as a collateral for loans that you take. However, the final decision of granting the loan lies on the financing agency or the bank. The price of gold announced by RBI during that time will be used to calculate the value of your SGB, based on which the security amount could be determined.

Penalties Applicable

No penalties will be charged during premature termination of the bond or in any other circumstances. Tax Deducted at Source (TDS) will be charged in such cases, depending upon the investor’s tax bracket range.

Comparison table (Physical Gold, SGB, Gold ETF)

Let us compare and see the difference between physical gold, gold ETF and SGB with the help of the table given below:

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 upon the fund performance Fixed Interest (2.50% of the principal value)
Maintenance cost High None None
Storage expense High None None
Deductions on gold value Making charges Fund processing charge (1%) + Demat charges None

Risks of Investment

Depending upon the price of Gold at the maturity, you could 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 SGB allowed?

A. Yes, it is allowed.

Q. Where can I get the application form from?

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

Q. What documents are included in KYC formality?

A. Same formalities will be done as at the time of purchasing physical gold. Personal identification will be done by documents like PAN/Aadhar card/Passport/TAN/Voter ID card.

Q. Can I buy 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, the limit is applicable.

Q. What guarantee do I have of the allotment?

A. If you produce all the required documents and are eligible to purchase a SGB, you will 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 Holding Certificate?

A. If you have provided your email id on the Application form, the Certificate of Holding will be emailed to you by RBI. Also, the place where you had applied for the SGB would provide you with the same on the date of issuance.

Q. At what price will I buy the bond?

A. The India Bullion and Jewelers Association Limited provides the closing price of golf of 999 purity. As per that price published, the average of the last three business days (of the previous week) will be calculated, and at that price, you would buy the bond.

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

A. You will be notified about the maturity amount a month before 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. You would have to approach the place from where you purchased the SGB and request them for the same. This must be done 30 days before the maturity date because your request would not be entertained on the coupon payment date.

After scrutinising the details and understanding the needs of the time, if you feel that SGB is the right choice for you. You must know that RBI releases the time bracket every year wherein in a mentioned week of every month, you could invest in SGB.

How can H&R Block help you?

Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. We have a team of in-house tax experts who can file your tax return accurately while giving you maximum tax benefits.

Still Have Questions?