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How to invest in Sovereign Gold Bonds5 min read

June 22, 2022
Sovereign Gold Bonds

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How to invest in Sovereign Gold Bonds5 min read

SGBs, or Sovereign Gold Bonds, are debt securities that are issued by the Reserve Bank India (RBI) on behalf of the Government.

SGBs are substitutes for holding physical gold. They are held in the demat form, and  denominated in grams of gold. Investors receive a fixed interest of 2.5% per annum, which is paid out every six months.

The minimum investment in SGBs is 1 gram, and the maximum is 4 kg for retail investors in one financial year.

Since they are backed by the government, SGBs are considered safe. The return from SGBs is in terms of interest and capital appreciation. Moreover, it is over and above the gold price return.

If you apply for SGBs online, you can get a discount of Rs 50 per gram on the nominal value. 

Advantages of investing in SGBs

Safety: SGBs do not carry any risk associated with holding physical gold, except the market risk. The bonds do not have any hefty making or designing charges or TDS. Furthermore, no one can steal or change ownership.

Additional source of income: SGBs offer guaranteed annual interest at 2.5%. The interest payout frequency is twice a year. This can be an additional source of income. Historically, gold prices have demonstrated extensive capital appreciation. 

Therefore, you can enjoy growth in their investment’s real value, and they can accumulate substantial wealth over time.

Indexation benefit: In case an investor transfers their bond before maturity, then they can benefit from indexation.

Trading on exchanges: You can trade SGBs on the secondary market. For example, after holding the bond for five years, one can trade them on NSE. NSE has all the Sovereign gold bonds after listing. To view all SGBs listed on NSE, use this link.

Can be used as collateral: Banks accept SGBs as collateral against loans. They treat them as a gold loan after setting the loan-to-value (LTV) ratio to the value of gold. The India Bullion and Jewellers Association Limited determines the ratio.

Do note that the volume of SGB is very low when you have SGB in demat format, so you will not get the best price when you wish to exit at peak gold price. Also keep in mind that SGBs cannot be converted into physical gold.

How to invest in SGBs on Paytm Money?

The government regularly puts out the schedule for issuance of SGB tranches. Investors can apply for SGBs via the Paytm Money app and website

Here are the steps to apply for SGBs on Paytm Money:

  • Go to SGB landing page to view current, upcoming and closed SGBs
  • Select the SGB to view details
  • On clicking Apply, you are directed to the order page
  • Enter the quantity you want to bid for and click Apply

The applications we receive are sent to the  exchange after 4:15 pm on days when a tranche is open for subscription. Please ensure that you have sufficient balance in your account during market hours (10 am – 4:15 pm) so that your order will be successful.

You can apply multiple times in a single SGB tranche as long as you are not exceeding the retail limit of 4 kg/person in SGB investment in a financial year (this includes secondary market buying of SGB too). 

Please note that you cannot have more than one active application at a given point. You can only apply once the previous application is successful/canceled/failed.

Redemption of SGBs

SGBs have a tenure of eight years, but premature redemption is permitted after five years.

The redemption proceeds automatically get deposited in the bank account of the investor. Also, one can always sell the bonds on the secondary market. Though the interest earned is taxable, there is no TDS at the time of interest payout or redemption.

Also, at maturity, there is no tax on capital gains levied on the investment proceeds. 

The SGBs are sold at the last three days’ simple average of the closing price of gold of 999 purity preceding the subscription period. The gold prices will be the ones published by the India Bullion and Jewellers Association Limited, and they will be denominated in INR.

SGB vs Gold ETF vs Physical Gold 

Particulars Physical Gold Gold ETF Sovereign Gold Bond
Returns Lower, due to making charges Lower than actual return on gold Higher than actual return on gold
Safety Great risk of theft and wear and tear High High
Purity The purity of gold is always questionable. High High
Gains Long Term Capital Gains after three years LTCG after three years Long term capital gains after three years and no tax if redeemed after maturity
Loan Can be used as collateral for loans One can avail a loan against their Gold ETFs. Can be used as collateral to avail a loan.
Tradeability or exit formalities Restrictive Tradable on exchanges Can be traded on the stock exchange. The bonds will be redeemed after the 5th year
Storage High storage cost Minimal cost Minimal cost

Whenever a tranche of SGBs is open for subscription, you can invest easily through our platform. So do your research and decide if you want to add SGBs to your portfolio.

Disclaimer: Investments in securities market are subject to market risks, read all the related documents carefully before investing. This content is purely for educational, information and investor awareness purpose only and in no way an advice or recommendation. Paytm Money Ltd SEBI Reg No. Broking – INZ000240532. NSE (90165), BSE(6707) Regd office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019.

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