Best Way to Invest in Sovereign Gold Bonds

Last Updated on December 18, 2023 by BFSLTeam BFSLTeam

Bonds are one of the most popular financial instruments available in the Indian markets, next only to equity. Traditionally, large institutional investors were the primary players in the bond market. However, of late, many retail investors have also shown interest in investing in bonds. One of the many advantages of bonds is that there are multiple types catering to different investor risk profiles. As a matter of fact, you can even find bonds that are ideal for conservative investors with low-risk tolerance; the sovereign gold bonds (SGB) being one of the many examples. 

Wondering how to buy sovereign gold bonds? Here’s a straightforward guide to help you navigate the seemingly complex landscape of SGBs. 

What are Sovereign Gold Bonds? 

Before we look at how to invest in sovereign gold bonds, it is important to first understand what they are. 

Sovereign Gold Bonds were launched in November 2015 by the Reserve Bank of India (RBI) under the Gold Monetisation Scheme. Designed to leverage the gold affinity of Indians, these bonds enable investors to partake in the capital appreciation of gold. 

In addition to any potential capital appreciation due to the increase in gold prices, investors are also paid interest of about 2.5% per annum on their invested capital. Since the scheme is backed by the RBI, it carries no default risk.  

Also Read: Capital Gain Bonds (54EC) Explained

Key Highlights of Sovereign Gold Bonds 

Now, let’s quickly go through the highlights of SGBs before checking out how to invest in gold sovereign bonds. 

• SGBs are issued in 2 to 4 tranches every financial year.
• Only resident Indian entities like individuals, HUFs, trusts, charitable institutions and universities can invest in SGBs. 
• The minimum denomination of each bond is 1 gram of gold.
• The maximum amount of investment that can be made is 4 kilograms in the case of individuals and HUFs and 20 kilograms in the case of trusts.
• The tenure of SGBs is 8 years with an option to exit prematurely during either the 5th, 6th or 7th year of investment. 
• SGBs can be used as collateral for loans and traded on the stock exchanges. 

Also Read: How to Invest in Government Bonds in India?

How to Invest in Sovereign Gold Bonds in India

If you wish to make an investment in SGBs, you can do it offline by physically visiting a bank branch or online from the comfort of your own home. Here’s an overview of the process you need to follow. 

How to Invest in Sovereign Gold Bonds Online

The Reserve Bank of India has empowered certain Scheduled Commercial Banks (SCBs) to enable interested investors to apply for the bonds online. If you have an internet banking account in any of the listed SCBs, you can follow the steps outlined below to invest in sovereign gold bonds. 

• Step 1: Visit your bank’s internet banking portal. 
• Step 2: Log into your account using your user credentials. 
• Step 3: Look for the SGBs option. You can usually find it under the investments section of the net banking portal. 
• Step 4: Fill out the online application form and submit it. 

That’s it. The required investment amount will be instantly debited from your bank account. Once the bonds are issued by the Reserve Bank of India, you will receive the same at the address registered with your bank. 

How to Invest in Sovereign Gold Bonds Offline

If you’re not technologically adept or don’t have an internet banking account, you can still invest in sovereign gold bonds by following the steps listed below. 

• Step 1: Visit the branch of a Scheduled Commercial Bank, Stock Holding Corporation of India (SHCIL) or a designated post office. 
• Step 2: Request for a sovereign gold bond application form. 
• Step 3: Fill out and submit the application form along with KYC documents and a Demand Draft (DD) for the amount of investment you wish to make. 

Once you submit your application form, you will receive an acknowledgement. You need to keep the acknowledgement safe until the bonds are issued by the RBI. Once issued, they will be sent to the address specified in the KYC documents that you submitted. 

Things You Should Know Before Making an Investment in Sovereign Gold Bonds 

Now that you know how to buy sovereign gold bonds, let’s look at a few things you need to be aware of before investing in them. 

• If you have a demat account, you can opt to hold SGBs in a dematerialised format by specifying the same in the application form. 
• You’re eligible for a discount of Rs. 50 per gram on the nominal value of the bond if you apply online.
• Investments of more than Rs. 20,000 cannot be made in cash. Instead, you need to submit a Demand Draft, Cheque or transfer funds online. 
• SGBs are not entirely risk-free. If the market value of gold falls, your investment will also decline in value. 

Also Read: Benefits of Investing in Bonds

Conclusion 

SGBs are easily one of the best investment options currently available. It carries no default risk since it is guaranteed by the Government of India. However, the returns are market-linked and you may even lose your capital if the gold value declines after you invest. That said, making an investment in sovereign gold bonds is a good way to diversify your portfolio risk.