Sovereign Gold Bonds: How do you buy SGBs and what's the lock-in period?

During times of market instability and high inflation, the first safe haven asset that comes to mind is gold. The yellow metal has been known to act as a hedge in many adverse scenarios, such as soaring inflation, economic instability, and others. There are many ways to invest in gold. Buying physical gold, coins and bars from jewellers and banks is the traditional way of investment. One can also invest in gold with Sovereign Gold Bonds, gold-related stocks, gold ETFs, digital gold, and others.  

Sovereign Gold Bonds, or SGBs, are issued by the Reserve Bank of India on behalf of the Indian government as an alternative to physical gold. These bonds are government securities expressed in terms of grams of gold and are issued a couple of times in a given financial year. The scheme was first floated in 2015 by the Indian government. The lock-in period for the scheme is 8 years.

According to an RBI notice, the second series of the SGB scheme will open on August 22 (next week) and will be closed on August 26. The central bank has not declared the issue price but is expected to announce it soon. The first series this year was issued between June 20 and June 24.  

 

How to invest in Sovereign Gold Bonds? 

The central bank issues these bonds on behalf of the government. Interested investors will have to pay the issue price in cash and on maturity, the bonds can be redeemed in cash. The final amount will be based on the ongoing market price along with the interest for the given lock-in period. 

Also read: Why it makes sense to invest in digital gold

As per RBI rules, the interest paid on these bonds is 2.50 per cent (fixed rate) per annum on the initial amount invested. The investors get the interest semi-annually, as per the rule. The last interest is usually paid on maturity along with the principal amount. 

Who all can buy SGBs? 

As per the RBI rules, any resident of India under the Foreign Exchange Management Act, 1999 can invest in SGB. In case, an individual investor changes their residential status from resident to non-resident after purchasing the bond, he or she can still hold the book till early redemption/maturity. 

How much can you invest? 

One can buy SGBs in denominations of one gram of gold, and multiples. The minimum investment is one gram, while the maximum can be 4 kg for individuals and Hindu Undivided families (HUF).  

For trusts, institutions, and other entities, the limit is 20 kg per fiscal year (April – March).  

Can you break the bond midway? 

The bond lock-in period is eight years, but investors can exit it after five years from the date of issue. But holding the bond until maturity can help investors avail tax benefits. If they sell it before the lock-in period, the tax will be applied on the period of holding.

How can you buy these bonds? 

The bonds are available at all stock exchanges, scheduled commercial banks, designated post offices, the RBI website, and the Stock Holding Corporation of India Limited (SHCIL). One can track the subscription opening date, visit the RBI website or SHCIL offices, or designated Post Offices, agents for SGBs, to buy the bonds.