What are Sovereign Gold Bond(SGB) schemes?

by Mansi Singhal
sovereign gold bond schemes sgb

Sovereign Gold Bond (SGB) is a scheme that was launched by the government of India in November 2015. SGB was launched under the Gold Monetization Scheme. In other words, SGB is the government securities denominated in grams of gold, although it can be used as a substitute for holding physical gold.

On the behalf of the Government of India, the Reserve Bank of India issues SGBs. It is issued under the Government Security Act, 2006. Therefore, the investors for the bond are held be holding certificates. RBI issue Press Release stating issue price of the bond before new issue. Also, the closing price of gold prices are fixed in Indian Rupees on the basis of a simple average.

Maximum and Minimum Limit to invest in Sovereign Gold Bond (SGB)

The minimum investment that can be made in the SGB bonds can be 1 gram. Whereas, the maximum limit of the bond can be 4 KG for (Individuals and HUF). For trusts and some other similar entities, the limit was 20 KG. The limit was notified by the government in the declaration on the Reserve Bank of India website. Although, the investment limit of 4 KG in the bond is applied in the case of the Joint Holding company. It was applicable to the first applicant only and after that changes accordingly.

The point to be noted-

  • Every family member (must fulfill the above-mentioned criteria) can buy the bond in their name
  • Also, every year the ceiling has been fixed on a fiscal year basis.
  • There must be criteria mentioned further to be followed to maintain transparency in the system.

What is the Eligibility to buy SGB?

The person who is the (resident of India) defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. It further includes individuals, HUFs (Hindu Undivided Family), trust, universities, charitable institutions, and minors.

Whereas, in case of minor his application has to be made by his/her guardian.

What are the benefits and features of SGB?

  • The SGB bonds are denominated (measurable) in multiples of grams of gold. The basic unit of 1 gram (1g) is applicable.
  • The maturity period of SGB will be a period of 8 years. Also, it can be redeemed every 5th year, because of the future uncertainty.
  • Payment for the bond will be done through cash payment. The limit was RS 20000 or demand draft or Cheque or net banking.
  • The subscription of the bond from the investors is accepted by all the branches of the State Bank of India.
  • A fixed rate of 2.50 % per annum will be given to the investors. It is payable semi-annually on the nominal value of the subscribed bond.
  • There are various customer services such as an address, early redemption, nomination, grievance redressal, transfer application, etc. All these services are provided by issuing bank/ SHCIL offices/ Post Offices/ Designated Stock Exchange/ Agents.
  • Bonds can also be tradable on the stock exchanges as per the provision of the Government Securities Act 2006, whereas, partial transfer of bonds is also possible.
  • There may be a risk of capital loss because the market price of gold declines anytime.
  • The investors are provided by e-mail regarding the queries related to SGB.
  • In the case of the death of the investor, the nominee of the bond may approach the receiving office. By which they are able to recover the amount of claim.

How to buy a Sovereign Gold Bond Scheme?

The Sovereign Gold Bond Scheme can be brought both online as well as offline. These bonds are sold by below-mentioned entities:

  1. Nationalized Bank
  2. Scheduled private and foreign banks
  3. Designated post offices
  4. Stock Holding Corporation of India
  5. Stock Exchange

In offline mode, the willing person can visit any above-mentioned branch. Whereas, in online mode, individuals can apply by visiting the website of listed scheduled commercial banks. The main advantage a person can avail through online mode is INR 50 less than the nominal value. Also, the payment for the online application can be done through digital mode i.e., net banking, etc.

Sovereign Gold Bond Scheme is one of the most profitable investments with widespread benefits due to RBI. Further, it has low restrictions to diversify the investment portfolio. The individual with the low-risk capability can choose this scheme to invest to enjoy substantial returns.

This scheme is one of the highest return-bearing government schemes. Sovereign Gold Bond can be more profitable, as compared to physical gold. It was backed by the highest financial authority Reserve Bank of India. To invest in SGB, analyzing the financial goals and period of the investment, must be considerable. 

FAQs

What is a Sovereign Gold Bond (SGB)? Who is the issuer?

Sovereign Gold Bond is the government securities denominated in the gram of gold. This gold can be used as a substitute for holding the physical gold. It is issued by the central bank of India on the behalf of the Indian government.

How does Sovereign Gold bond price calculated ?

Sovereign Gold Bond price are calculated by a simple average of the closing price of 999 purity gold fir the last 3 days set by the Indian Bullion and Jewelers Association Limited (IBJA).

Are there any risk in investing in SGBs?

There might be a risk of capital gain while investing in SGBs due to the decline in the gold price. Whereas, the investor does not lose any value of the gold which he has paid while acquiring SGBs.

Can a minor invest in SGBs?

Yes, on the behalf of minor his/her parents file the application for SGBs.

What is the minimum and maximum limit for investing in SGBs?

The minimum limit for investing in SGB is one gram whereas, the maximum limit was 4 kg for individuals, 4 kg for Hindu Undivided Family, and 20 kg for trust and other government entities.

Can each member in family can buy 4 kg of gold under his/her name in SGBs?

Yes, each member can buy 4 kg of gold under his/her name in SGBs, if he/she full fill the criteria laid down by RBI.

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