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All you need to know about Sovereign Gold Bond
The Fourth Tranche of Prime Minister Modi’s ambitious Sovereign Gold Bond scheme is up for grabs these days. The scheme can be subscribed between July 18th to July 22nd 2016. Let’s understand the scheme and take benefits from it. Since the scheme ends tomorrow, i.e Friday, 22nd July 2016, I will come to the topic without wasting much of your time.  So here’s all all you wanted to know about the Sovereign Gold Bonds.

So, what is the Sovereign Gold Bond?


In a bid to bring down the import of gold and to give an alternative to buy physical gold, Government of India had announced the Sovereign Gold Bond scheme. The fourth tranche of the gold bond scheme ca be subscribed right now and last day to subscribe for it is tomorrow.

Important things you should know about investing in sovereign gold bonds


1. The gold bond scheme was announced to give consumers an alternative where they can buy bonds in place of in place of physical gold.

2. The minimum bond size was worth 1 grams of gold, and the maximum was 500 grams.

3. The Sovereign Gold Bonds were open for public subscription from July 18th to 22nd and the subscription period ends tomorrow. The bonds will be issued on August 5, 2016.

4. The Sovereign Gold Bonds were offered at an interest rate of 2.75%. The interest will be payable semi-annually on the initial value of investment.

5. There would also be a commission of 1% on the subscription amount for distribution of bonds.

6. The physical certificates as well as De-mat form of bonds can be purchased this time.

7. The tenor of the bond will be for a period of eight years with exit option from 5th year can be exercised on the interest payment dates.

8. The price of the bond will be fixed in rupees, on the basis of the previous week’s (Monday – Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewelers Association Ltd. The same procedure would be followed for calculating the redemption price for the bonds.

9. Capital gain tax arising on redemption of SGB to an individual has been exempted. The indexation benefit will be provided to LTCG arising to any person on transfer of bonds. The bonds can be used as collateral for loans and the loan-to-value ratio will be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.

10. The bonds will be tradable on exchanges and will be eligible for Statutory Liquidity Ratio.

Benefits of applying in Sovereign Gold Bonds


1. The Sovereign Gold Bonds will be available both in demat and paper form.

2. The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.

3. They will carry sovereign guarantee both on the capital invested and the interest.

4. Bonds can be used as collateral for loans.

5. Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

6. Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

Some important FAQs before we proceed further


Why should I buy SGB rather than physical gold? What are the benefits?

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Are there any risks in investing in SGBs?

There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.

Can a Minor invest in SGB?

Yes. The application on behalf of the minor has to be made by his / her guardian. So it’s a good investment for higher education of your children.

Can I buy 500 grams worth of SGB every year?

Yes. One can buy 500 grams worth of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.

Is the limit of 500 grams of gold applicable if I buy on the Exchanges?

The limit of 500 grams per financial year is applicable even if the bond is bought on the exchanges.

 Can I encash the bond anytime I want? Is premature redemption allowed?

Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor.

Who is eligible to invest in the SGBs?

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities, charitable institutions, etc.

Whether joint holding will be allowed?

Yes, joint holding is allowed.

If I apply, am I assured of allotment?

If the customer meets the eligibility criteria, produces a valid identification document and remits the application money on time, he/she will receive the allotment.

Can I apply online?

Yes. A customer can apply online through the website of the listed scheduled commercial banks.

What do I have to do if I want to exit my investment?

In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post Office/ National Stock Exchange of India Ltd./Bombay Stock Exchange Ltd./agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office/Stock Exchange at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

Can I use these securities as collateral for loans?

Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time.

What are the payment options for investing in the Sovereign Gold Bonds?

Payment can be made through cash (upto Rs. 20000)/cheques/demand draft/electronic fund transfer.

We hope that we have answered all your queries about Sovereign Gold Bond. Please feel free to raise question if you feel you need information on this topic.

Have a great day and happy Investing.

Now trade with Moneypalm at a maximum brokerage of ONLY Rs 15 per executed order. Also some really attractive account opening offers are going on for the month of July 2016.

 To avail the above offers, please contact our Client Service Department at +91 0124-4342000 or request a call back through our website

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Pratyush DixitConsultant - Digital Marketing and Content

Pratyush is a Post Graduate in Marketing Management and has a leadership experience of nearly a decade in diversified industry including Stock Broking. Having headed companies for over half a decade, Pratyush brings with him, rich Marketing and....

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