The Finance Ministry issued a statement saying, “The SGBs will be sold through Scheduled Commercial banks (except small finance banks, payment banks, and regional rural banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.”
The subscription window for the previous tranche of the Sovereign Gold Bond Scheme 2023-24 Series III was available from December 18 to December 22, 2023. The bonds were subsequently issued on December 28, 2023.
Eligibility criteria for SGB purchase
The Sovereign Gold Bonds (SGBs) issued by the Reserve Bank of India (RBI) on behalf of the government have specific eligibility criteria for investors. Here’s a breakdown of those who are permitted and those who are not allowed to invest in SGBs.
The list of eligible investors includes:
Individual residents: Encompassing both Indian citizens and individuals of Indian origin (PIOs) residing in India.
Hindu Undivided Families (HUFs): Recognized as traditional family units under Hindu law.
Trusts: Encompassing public and private trusts duly registered in India.
Universities: Covering all universities acknowledged by the University Grants Commission (UGC) in India.
Charitable institutions: Referring to institutions registered under the Income Tax Act, 1961, holding valid 80G registration.
Investors ineligible to participate in the forthcoming SGB scheme include:
Non-Resident Indians (NRIs): Direct investment in SGBs is not permitted for them.
Foreign Institutional Investors (FIIs): Investing in SGBs is also restricted for FIIs.
Minors: Their investment in SGBs is only permissible through their guardians.
Investors interested in diversifying their portfolios with gold investments through SGBs should be aware of the annual subscription limits. Individuals and HUFs have a limit of 4 kg, while trusts and similar entities have a limit of 20 kg.
Investment details
The valuation of SGBs is determined by the average closing price of 999 purity gold over the preceding three working days before the subscription period. Online subscriptions with digital payments enjoy a discount of ₹50 per gram.
Payment for the SGBs can be made through cash (up to a maximum of ₹20,000), demand draft, cheque, or electronic banking. Electronic banking encompasses various methods such as internet banking, mobile banking, and UPI payments.
Participants in the SGB scheme are entitled to a stable interest rate of 2.50 per cent per annum, disbursed semi-annually based on the nominal value of their investment. This equates to an effective interest rate of 1.25 per cent for each payment.
Apart, the interest is subject to taxation based on the investor’s income tax bracket. Nevertheless, if the SGBs are retained until maturity (eight years), the ultimate redemption amount qualifies for exemption from capital gains tax. This characteristic renders SGBs an appealing choice for investors aiming for capital protection in addition to a steady income.
Redemption details
The redemption price is calculated using the simple average of the closing price of 999 purity gold over the three preceding working days. This information is once again provided by IBJA Ltd. Consequently, on the redemption date, the SGB holder will receive an average value based on the recent closing prices, rather than the exact market price of gold. The calculation for the redemption price can be located on the official website of the RBI or the issuing agency as the maturity date of your SGBs approaches.
How to invest in SGBs online?
Buying SGBs through online channels offers a convenient and efficient method for investing in gold.
Step 1: Begin by logging into your respective internet banking account.
Step 2: Navigate to the main menu, choose ‘e-Service,’ and click on ‘Sovereign Gold Bond’.
Step 3: If you are a new customer, click on ‘Register’. Read and acknowledge the terms and conditions set by the Reserve Bank of India (RBI) before proceeding.
Step 4: Input all necessary details related to the SGB scheme and provide information about the depository participant from CDSL or NSDL, depending on the hosting of your demat account.
Step 5: Complete the submission of the online registration form.
Step 6: Following registration, either choose the purchasing option from the header link/section or directly click on ‘Purchase’.
Step 7: Input the desired subscription quantity and nominee details.
Step 8: Finalize the process by entering the one-time password (OTP) sent to your registered mobile number.
Income tax liability
The initial investment made in SGBs is not eligible for deduction under Section 80C of the Income Tax Act. The annual interest of 2.5 per cent earned on SGBs is taxable under “Income from Other Sources” according to your individual income tax slab. SGBs do not have tax deducted at source (TDS) applicable. If you retain SGBs until maturity (eight years), the final redemption amount is exempt from the capital gains tax, making them a potentially attractive option for investors seeking tax-free returns on gold investments. However, selling SGBs before maturity will subject any capital gains to taxation. Long-term capital gains (holding for over one year) can benefit from indexation to adjust for inflation, potentially reducing your tax liability.
Should you invest in RBI-issued gold bonds?
Managing financial risk involves adhering to the key principle of diversification. Integrating a mix of asset classes such as stocks, bonds, real estate, and commodities in your portfolio aids in spreading risk and has the potential to enhance returns. While investing in SGBs can contribute to diversification, it is important to acknowledge associated risks. Gold prices are subject to fluctuations, and the fixed interest earned on SGBs may potentially lag behind inflation. It is advisable to consider diversifying your portfolio by allocating at least 5-10 per cent to gold.
Moreover, SGBs are deemed to carry lower risk compared to direct investments in physical gold. They mitigate issues related to storage and security that come with physical gold ownership. Moreover, they assure capital protection upon maturity and provide regular interest payments. Despite these advantages, they are not completely devoid of risk. Their value can vary depending on gold prices, and the interest they provide may not align with inflation, potentially resulting in negative real returns.
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Published: 06 Feb 2024, 05:24 PM IST