What is RBI Sovereign Gold Bond (SGB) Scheme, 2024?

Gold is considered as an auspicious metal in many cultures, and is also a savior in times of financial crisis. It is an unsaid lifebelt against heavy loans or mortgages. Investment in gold is one of the most favorite investments of all time, especially in India. 

The demand for this precious metal keeps rising with time. Due to the global conflicts in Ukraine and Israel-Palestine, many investors have started flocking toward gold since it is a safe-haven asset. Therefore, investing in a gold bond scheme can be a good investment opportunity. 

Every year, the Government of India and Reserve Bank of India (RBI) offer a Sovereign Gold Bond Scheme. In this article, we will discuss what is RBI Sovereign Gold Bond Scheme, 2024? If you want to know all the details about this scheme, keep reading this article.

What is the Sovereign Gold Bond Scheme (SGB) by RBI?

The Sovereign Gold Bonds (SGBs) were first introduced by the Government of India and RBI in November 2015, as an alternative to buying physical gold. SGBs fall under the category of debt funds. 

Gold is considered an auspicious asset and many people prefer to invest in it. SGBs are government securities and are denominated in multiple grams of gold. The interest rate of SGB for FY 2023-2024 was 2.50%. However, for FY 2024-2025, the interest rate for the gold bonds has not been notified yet. 

The interest rate is payable on the semi-annual basis on the nominal value. The tenor of SGB is 8 years, and comes with an exit option in the 5th, 6th, and 7th years on the interest payment dates. The gold bonds are issued as stocks as per the Government Security Act, 2006, and a Holding Certificate is given to the investors for these bonds.

The maximum limit of gold prices which is allowed to be subscribed by an individual and a Hindu Undivided Family (HUF) is 4 kilograms. In the later part of this blog post, we will discuss all the prescribed limits in detail. 

What are the Benefits of Investing in Sovereign Gold Bond (SGB)?

The Sovereign Gold Bond Scheme encourages the investors to make informed decisions and capitalize on the unique advantages offered by this scheme. The benefits of this scheme are mentioned below:

• No Making Charges: When an investor invests in Sovereign Gold Bonds, they do not have to pay any making charges or GST which are incurred while purchasing physical gold.
• Government-Backed Scheme: SGB is issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Due to this, the investors are provided with the assurance of sovereign backing for their investment in this gold bond scheme.
• No Worries regarding Gold Adulteration: When an investor invests in SGB, they do not have to worry about gold adulteration. However, when someone purchases physical gold, there’s always a possibility that there are impurities present in the gold. SGBs are issued by the RBI and GOI, and thus are said to have 999 purity.
• Fixed Tenure: Since the SGBs have a fixed tenor ranging from 5-8 years, the investors have a clear understanding of the holding period and can do financial planning for the long-term.
• Collateral for Loans: The SGBs can be used as collaterals for securing loans from financial institutions as well as non-banking financial companies. This provides them with additional financial flexibility.
• Safety and Transparency of the Scheme: Since SGB is backed by the Government of India, the investors do not have to worry about the safety of the scheme. The transparent pricing system linked to the gold’s market value promises fairness for the investors
• No Storage Costs: SGBs are available in the demat format. When an investor invests in SGB, it is stored electronically in a demat format and not in the physical form. So, the investors do not need to worry about the gold’s safety or pay annual charges for storing it in a bank locker.
• Traded on Stock Exchanges: The Sovereign Gold Bonds can be traded on recognized stock exchanges and hence, offer liquidity to the investors who may wish to purchase or sell their bonds before they reach maturity.
• Income from Fixed Interest Rate: On the initial investment of the investors, a fixed interest rate is received by them along with the potential appreciation in the gold’s market value during the tenure of SGB.
• Flexibility in Denominations: The Sovereign Gold Bonds are available in various denominations and the investors can choose an investment size according to their financial goals.
• Shield Against the Volatility in Gold Price: Due to the fixed rate of interest offered by the SGBs, the investors are protected against the volatility linked with the gold prices in the open market. This makes SGBs a more stable investment avenue.

How can you purchase Sovereign Gold Bonds (SGBs) online?   

SGBs can be purchased from the secondary market, from NSE or BSE. When these gold bonds are purchased online, the price of these bonds are Rs. 50 less than the nominal price. 

If you do not have a demat account, you do not need to worry. You can easily invest in SGBs by applying through a scheduled commercial bank. Just log into your bank’s online portal and find the option to purchase SGBs and follow the instructions. 

Investment Limits for Sovereign Gold Bonds (SGBs)

The minimum investment in SGBs is one gram of gold. The maximum subscription is 4 kilograms for individuals, 4 kilograms for HUFs, and 20 kilograms for trusts and similar entities as notified by GOI on a per-fiscal year basis. As far as joint holdings are concerned, the first applicant is subject to the maximum cap of 4 kilograms. 

Bonds purchased in the secondary market and those subscribed under various tranches during the government’s primary issuance are also covered under the annual ceiling. Holdings which are utilized as collateral by banks and NBFCs are exempt from the investment ceiling. A maximum limit for Rs. 20,000 applies for transactions which are conducted in cash. As the investors engage in SGBS, they must adhere to all these prescribed limits.

Is the Sovereign Gold Bond (SGB) Right for You?

Due to its multiple benefits and low restrictions, the Sovereign Gold Bond Scheme is one of the most profitable investment options available in India. Individuals who have a low risk appetite but still want to avail substantial returns can invest their funds in SGB since it is one of the highest returns bearing government-backed schemes in India.

The regular investors can diversify their investment portfolio by introducing SGB in it since it would compensate for the exposure to risks associated with the stock market. Whenever there’s a downturn in the stock market, gold tends to appreciate in value. This mitigates the overall risk level of an entire investment portfolio. A Sovereign Gold Bond can be more profitable compared to the physical gold investments and gold ETFs, since it is backed by the highest financial authority in India i.e., RBI. However, it is recommended that SGB should only be bought by the investors after analyzing their financial goals and the time frame they are willing to invest for.

Conclusion

Gold has a special place in the hearts and the banks of Indians. This precious metal is a symbol of wealth, tradition and rich culture. While physical gold has its own charm, there are many challenges that come along with it such as its purity, storage and security concerns. Therefore, if you are willing to buy gold for the sake of investment, Sovereign Gold Bonds (SGBs) come across as an appropriate choice. The value of 1 SGB is equivalent to 1 gram of gold. Unlike physical gold, no making charges are applied on SGB. So, compared to physical gold, SGB is far better for investment. If you liked reading this blog post, do check out the rest of our blog posts!

Frequently Asked Questions (FAQs)

Q1. What exactly are the Sovereign Gold Bonds?

A. Sovereign Gold Bonds are financial instruments issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These bonds are denominated in grams of gold, which means that 1 SGB is equivalent to 1 gram of gold.

Q2. What is the minimum permissible limit to invest in Sovereign Gold Bonds?

A. The minimum permissible limit for investing in SGB is 1 gram of gold.

Q3. Is a Sovereign Gold Bond better than a Fixed Deposit?

A. Investors having a low risk tolerance may consider Sovereign Gold Bonds since they have a potential for offering higher returns and also come with tax advantages. However, it is necessary to know that SGBs are also affected by the gold price’s fluctuations. If you want guaranteed returns and liquidity benefits, Fixed Deposits might be more suitable for you.

Q4. What is the tenor of the Sovereign Gold Bond Scheme?

A. Sovereign Gold Bond comes with a tenor of 8 years.

Q5. Can Non-Resident Indians (NRIs) invest in the Sovereign Gold Bond Scheme?

A. No, NRIs are not eligible for investing in the Sovereign Gold Bond Scheme for now.

Disclaimer: This blog post is for educational purposes only.The securities/investments quoted in this blog post are not recommended by the author.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.