How to invest in Sovereign Gold Bonds (SGB) Online

In India, gold is more than just an investment. It is an emotional asset that has a lot of sentimental value. But purely from an investment perspective, gold has certain inherent risks.For instance, when you purchase gold jewellery, the high making charges negatively impact the purchase price. Storage of physical gold and gold purity are some other causes of concern. Moreover, most people prefer keeping gold in bank lockers that charge an annual fee.If you want to invest in gold to diversify your portfolio and take advantage of the long-term appreciation in its value, then Sovereign Gold Bonds (SGBs) can be a smarter alternative. But how to invest in Sovereign Gold Bonds ? Here’s everything you should know-

The Indian government introduced the Sovereign Gold Bond (SGB) in 2015 as a dematerialized (Demat) alternative to physical gold under its Gold Monetization Scheme. The bonds are government securities denominated in grams, just like physical gold. Apart from allowing investors to benefit from the price appreciation of gold, SGBs also pay fixed interest to the investors.But the RBI offers SGBs in limited duration tranches. Before every new tranche, the RBI issues a press release to announce the rate of the gold bond.The minimum gold you can purchase with SGB is 1 gram, while the maximum limit for retail investors and HUFs is 4kgs. Universities and trusts can purchase up to 20kgs of gold.

Unlike traditional gold investments where you purchase physical gold, SGBs are a Demat alternative. When you invest, you receive a bond holding certificate stating the quantity of gold you’ve purchased and the purchase price. The bonds have a maturity period of 8 years; however, investors can exit from the 5thyear on interest payout dates.For instance, if you’d like to exit your SGB investment in the 5th year, then you can redeem the bond as per the prevailing gold prices, and the amount will be directly deposited into your bank account. Let’s say you invested Rs. 5,00,000 to purchase 10gms of gold through SGB at Rs. 50,000/gram. After 5 years, if the price of gold is Rs. 55,000/gram, then you’ll receive Rs. 5,50,000 on redemption.

One of the most significant advantages of investing in SGB is earning fixed interest. Apart from the appreciation in gold’s price, SGB earns you additional income through interest payments. Currently, the interest rate on SGB is 2.5% per annum. The interest is paid twice a year. Investors receive SGB interest in their bank accounts.But just like physical gold, there are always risks when investing in SGB. It is possible for the market price of gold when you purchase SGB to be higher than the market price at the time of selling. Your investment could lead to losses in such cases. But note that you’ll still receive the interest payments throughout the holding period.

You can invest in SGB online and offline. Selected banks, post offices, and SHCIL (Stock Holding Corporation of India Limited) sell SGBs on behalf of the government. You can also buy and sell SGBs through recognized stock exchanges.During the limited duration investment window, most banks allow investors to purchase SGB through their online portal. Alternatively, you can also use RBI’s Retail Direct portal to invest in SGB every time a new tranche is open for investment. To invest in SGB online, you’ll have to complete KYC by submitting your PAN and other verification documents.

As SGB is a government security, no TDS is applicable to interest income. However, the interest income is added to an investor’s income for the financial year and taxed as per their tax slab. For individual investors, the long-term capital gains at redemption are exempt from taxes under Section 47(viic) of the IT Act.In case of premature withdrawals within 3 years, the capital gains are added to the taxable income and taxed as per the applicable tax slab of the investor in the year of the withdrawal. Long-term capital gains on a holding period above 3 years are taxed at 10% with indexation benefit.

SGBs can be an excellent addition if you want to build a diversified portfolio. As these are government-backed securities, they are highly secure and transparent. Most importantly, they are free from the inherent risks of purchasing physical gold and generating fixed interest income.But as commodities like gold are highly volatile, ensure that you only dedicate 10%-15% of your portfolio to SGB. Now that you know how to invest in Sovereign Gold Bonds , watch out for the latest press releases from the RBI to ensure that you don’t miss the limited duration window for investing in the upcoming tranche of SGB.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.