What Are Sovereign Gold Bonds? - All That You Need To Know

Find out what makes Sovereign Gold Bonds a better investment avenue than physical gold and Gold ETFs. Read all that you need to know about Sovereign Gold Bonds (SGBs). 

Created On: Jul 12, 2021 16:23 IST
All About Sovereign Gold Bonds
All About Sovereign Gold Bonds

Investing in Gold is truly expensive as this precious metal is dearer in the market. However, the best part of investing in gold is that one need not worry about the safety of the physical form of Gold. Gold can be purchased on paper as well. Yes! It is possible to invest in gold by purchasing Sovereign Gold Bonds (SGBs) which are issued by the Government of India for investors looking to purchase gold.       

Read on to find out all about Sovereign Gold Bonds (SGBs) and what makes it a different investment avenue out of all the choices available in the financial market.  

What is Sovereign Gold Bond (SGB)?

SGBs are government securities denominated in grams of gold that replace hoarding of physical gold with an investor. One needs to pay the issue price in cash and can buy Sovereign Gold Bonds that are issued by the Reserve Bank of India (RBI) on behalf of the Government of India (GoI).

Why Sovereign Gold Bonds (SGBs)?

Easy to Liquidate - Sovereign Gold Bonds are easy to liquidate in case an investor wants to encash the investment done in SGBs. These bonds are traded in the financial market and are easily liquidated at the time of need.

Premature Redemption - The beneficiary can liquidate the SGBs at the ongoing market price at the time of need. The quantity of gold for which the investor paid, he/she will receive the ongoing market price at the time of redemption.

Safety - A lot of effort goes into safeguarding physical gold and the effort minimizes when one invests in Sovereign Gold Bonds. There is no need to arrange for a bank locker to keep the stock of physical hold in place. Both, the risks and costs of storage are eliminated with SGBs.

Risk Involved in SGBs

The only possible risk involved in SGBs is a risk of capital loss only if the market price of gold declines.

Eligibility Criteria to buy Sovereign Gold Bonds

Here are the eligibility criteria if you wish to invest in Sovereign Gold Bonds:-

  1. An individual interested to invest in SGBs should be a resident in India as defined under Foreign Exchange Management Act, 1999
  2. Individuals, HUFs, trusts, universities, and charitable institutions are eligible to invest in SGBs.
  3. Individual investors who change residential status from resident to non-resident may continue to hold SGB till the redemption/maturity of the SGB.

How To Invest in Sovereign Gold Bonds?

Interested investors can read the steps mentioned below to purchase Sovereign Gold Bonds:-

The Sovereign Gold Bonds (SGBs) are sold through designated post offices in India.

In the secondary market (share market), Sovereign Gold Bonds can also be purchase through recognized stock exchanges such as - Bombay Stock Exchange Limited and National Stock Exchange.

Investors need to open a DMAT account to hold the Sovereign Gold Bonds with them. Read the article mentioned below to open your DMAT account soonest possible and earn profits on your investments.

What is a DMAT Account and Why do you need it?

SGBs Tenure of Investment and Resale/Redemption

In general cases, Sovereign Gold Bond owners can redeem the bonds after 5 years of investment. However, if one doesn’t wish to hold the SGBs for too long, they can also opt for early/premature redemption. It is important to inform the bank 30-days before exercising the exit option.  

 In the case of secondary market trading, Sovereign Gold Bonds can be redeemed after 14 days from an initial subscription date, or as per the discretion of RBI guidelines.

Sovereign Gold Bonds vs. Gold ETFs

Compared to physical gold investments and Gold ETFs, a sovereign gold bond is a more profitable avenue of investment in gold because it is backed by the highest financial authority, RBI on the behalf of GOI. This makes Sovereign Gold Bonds more secure than other financial instruments in which high risk is involved.   

Interested individuals are advised to follow the RBI’s website periodically to stay updated with the development being made towards the sovereign gold bonds benefiting investors.


*Disclaimer - The information provided above is only for information purposes to spread financial knowledge and enhance literacy among our readers. It shouldn’t be taken as financial advice by anyone.

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