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Advantage of Sovereign Gold Bond over Physical form of gold

Advantage of Sovereign Gold Bond over Physical form of gold

The buyers of Sovereign Gold Bonds (SGB) have multiple advantages compared to holding  the physical form of gold. The investors will be issued a Holding Certificate (Form C). The Bonds shall be eligible for conversion into de-mat form. It would eliminate the risk and cost of holding gold in physical form. It has several other advantages compared to the  jewelry form of gold, as it is free from making charges and market value is paid on the basis of previous week’s average price as applicable for gold of 999 purity published by IBJA at the time of redemption. The investors earn 2.50%  (fixed rate) per annum on the nominal value. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal. The bonds are held in the books of the RBI or in Demat form eliminating the risk of loss of scrip etc. Like gold loans, SGBs can be used as collateral for loans. The lien can be marked at the depository by the bank. The bonds can be traded by the investor on exchanges/NDS-OM from a date to be notified by RBI.The maturity period of the bond is 8 years. However, the investors who wants to encash/redeem the bond before the maturity period is allowed to encash after 5 years from the date of issue on coupon dates. The bonds can be transferred in the name of   other eligible resident Indian. The investments in SGBs will be eligible for Statutory Liquidity Ratio.

Latest Issue:

The Government of India has vide its Notification F.No. 4(16)-W&M/2016 dated October 20, 2016, announced that the Sovereign Gold Bonds 2016 – Series III (“the Bonds”) will be open for subscription from October 24, 2016 to November 2, 2016. The Government of India may, with prior notice, close the Scheme before the specified period. The date of issuance shall be November 17, 2016issue price shall be Rs. 50 per gram less than the nominal value. Date of issuance shall be November 17, 2016.


The resident Indians (individuals, HUFs, Trusts, Universities, Charitable institutions etc.,) as defined under FEMA Act 1999 are eligible to invest both in single name or joint names. In the case of joint names, the buying limit applies to the first applicant.The bonds can also be purchased in the minor’s name.

Maximum investment in terms of denominated gold units:

The Bonds issued will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.The resident Indians can invest in above bonds with the minimum investment in gold units of two grams. The maximum buying limit allowed to a person per fiscal year is 500 grams of gold units. The limit of 500 grams per financial year is applicable even if the bond is bought on Exchanges.

Periodicity of issuance of new bonds:

The Bonds will be issued in tranches at a specified intervals notified by RBI. Each tranche will be kept open for a specified period to the investors.

Method of fixing price of SGB:

Issue price of SGB shall be Rs. 50 per gram less than the nominal value. The nominal value for both the issue price and redemption of bonds are worked out on the basis of the previous week’s (Monday to Friday) average closing price published by the Indian Bullion and Jewellers Association Ltd. (IBJA) on one gram of gold of 999 purity. The price of gold for the relevant tranche of SGB will be announced by RBI two days before the issue opens.

Nomination facility: Available

TDS and Capital gain tax:

No TDS will be deducted from interest paid on bonds. However, the interest earned on the bonds is taxable as per the provisions of income tax rules. The Capital gains treatment will be the same as applicable for physical gold.

KYC norms:

It is same as applicable for purchase of physical gold.

Risk factor:

If the gold rate in the market declines at the time of encashment of bonds the investor may incur capital loss.

Availability  and receipts of application forms :

The selected receiving offices of Scheduled commercial banks (excluding RRBs), designated Post Offices (as may be notified), Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges viz., National Stock exchange of India Limited and Bombay Stock Exchange are authorized to receive applications for the Bonds either directly or through agents. The facility of downloading online application is also provided by RBI and selected bank’s website.

(source: RBI press release from time to time)

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