The Complete Guide on Sovereign Gold Bonds (SGB)

Posted by  Fintra , updated 2023-02-04

The Complete Guide on Sovereign Gold Bonds (SGB)

Sovereign Gold Bonds (SGB), issued by the Reserve Bank of India (RBI) in November 2015 on behalf of the Government of India, are not like any other government bonds- They are bonds backed by gold. SGB are RBI mandated certificates issued against grams of gold, enabling individuals to invest in gold without bearing the strain of safekeeping the physical asset. Having a fixed interest rate of 2.5% interest per annum that is paid semi-annually, the SGB acts as a secured investment instrument among individuals, as gold prices are less exposed to market fluctuations. Their maturity period is eight years, but one can opt for redemption with RBI after the end of five years. Sovereign Gold Bonds (SGB) are listed on the stock exchanges and can be traded on them as well. 

Being popular and having a widespread demand, gold prices over time tend to rise significantly, making it a highly prospective investment avenue. Since SGBs are issued by the RBI under Government of India stocks, they have a particular window that is pre-set for subscription, and during it, the sovereign gold bond scheme gets issued in the name of the investor in tranches. Typically, the RBI declares the issuance of the latest sovereign bonds in a press release every 2-3 months, with a one-week window during which you can subscribe to this scheme. Upon the successful purchase of a sovereign gold bond, a holding certificate gets issued in the name of the investor.

In this blog, we will highlight the following topics on Sovereign Gold Bonds (SGB):

  1. Why Should You Invest or Purchase Sovereign Gold Bonds (SGB)?
  2. Benefits and Features of Sovereign Gold Bonds (SGB)
  3. Pros and Cons of Sovereign Gold Bonds (SGB)
  4. How Do Sovereign Gold Bonds (SGB) Work?
  5. How to Purchase Sovereign Gold Bonds (SGB) Online?  
  6. How Sovereign Gold Bonds (SGB) are Taxed in India?

In SGB, the gold gets sold on a per-unit basis, every unit derives its value from underlying one gram of gold with 999 purity. The cost is then calculated by taking the average of the closing prices of gold for the latest three working days preceding the subscription period. The closing prices are published by the India Bullion and Jewellers Association Limited (IBJAL). Even the redemption price gets calculated on the latest base data from the same source.

                                     sovereign gold bonds benefits

Why Should You Invest or Purchase Sovereign Gold Bonds (SGB)?

Why should you invest in gold via Sovereign Gold Bonds (SGB)? The answer is that it is easier and quicker. The portion of gold the investor pays for is protected, and at the time of redemption/ premature redemption, the investor receives the ongoing market price. Since the principal in gold units and the regular payment of interest gets guaranteed by the government, there is no risk of default involved. Moreover, gold decreases the risk of bonds and equity portfolios in uncertain times because do bear in mind gold usually performs best when there is uncertainty. For these reasons, SGB offers one of the best alternatives to holding gold in physical form. In fact, these bonds are maintained in the books of the RBI or in the demat form; this eliminates the risk of loss of scrip etc.

Benefits and Features of Sovereign Gold Bonds (SGB)

Sovereign Gold Bonds (SGB) is known to be a lucrative investment option because they help in taking advantage of rising gold prices along with paying annual interest of 2.50% to investors. Hence there are various benefits and features of SGB. For example, one of the biggest benefits of these bonds is that they offer a good hedge to an investor's overall portfolio during tough times. Some other benefits and features are listed below: 

                                 Sovereign Gold Bonds Features

Pros and Cons of Sovereign Gold Bonds (SGB) 

There are some pros and cons of investing in SGBs, hence, we now begin browsing through the pros of investing in gold bonds:

Some of the cons of SGBs are: 

How Do Sovereign Gold Bonds (SGB) Work? 

As described earlier, RBI issues SGBs in different tranches during the financial year. SGBs are made available through brokers, banks, post offices, and online platforms. In fact, it is believed that a certain discount on per gram purchased is offered to individuals who purchase them digitally to encourage buying SGBs online. Throughout the year, RBI introduces new series of SGBs for sale in the market. Hence, if someone misses the last one announced, the investor can wait for the next issue to be announced.

An investor can purchase the bonds in digital, physical or dematerialized format. If purchased physically, investors will get the bonds credited to their demat accounts by making a specific request for it. RBI will then process the dematerialization at their end, and during this process, until it's not done, the bonds are held in RBI’s books. Dematerialization may also be done post-allotment. Those who aren't purchasing directly from the RBI can purchase the units from the secondary market such as from the stock exchanges.

How to Purchase Sovereign Gold Bonds (SGB) Online?  

SGBs are generally sold via offices or branches of the Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and the authorised stock exchanges directly and/or through their agents. Hence, purchasing Sovereign Gold Bonds (SGB) online is very easy, they can be purchased online through the website of the listed scheduled commercial banks. The Gold Bond's issue price will mostly be Rs. 50 per gram less than the nominal value to the investors who're applying online. The payment against the application will be done through digital mode. Following are some of the common steps to be done while purchasing bonds online:

Step 1: Log in to the preferred bank’s internet banking account

Step 2: Click on the “e-service” option and select the “Sovereign Gold Bond” option

Step 3: Read carefully the “terms and conditions” drafted by RBI and click on “Proceed”

Step 4: After filling out the registration form, click on “Submit”

Step 5: In the purchase form, put the quantity of subscription you desire and insert the nominee details

Step 6: Finally, after verifying the details, click on the “Submit” option

                                taxes on sgb

How Sovereign Gold Bonds (SGB) are Taxed in India?

In India, interest on the SGBs gets taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). However, the capital gains tax occurring on the redemption of SGB to an individual is been exempted. The indexation benefits are provided to long terms capital gains arising to any individual on the transfer of a bond. Do note that tax deducted at source (TDS) isn't applicable on the bond. However, the bondholder must concede with the tax laws.

Following are some insights on how SGB are taxed: 

  1. Short-term capital gain (STCG): If an investor within 3 years of purchase sells its SGBs at a profit, then it is assumed STCG, this is taxable. This gain gets added to the income of the investor for the year and it will be taxed as per the applicable tax slab to the individual. As an example, if an investor's income falls in the tax slab of 20%, then 20% STCG will be assigned on the profit amount.
  2. Long-term capital gain (LTCG): When an investor books profit in SGBs after 3 years of purchase, this tax is used. This is applicable at 20%, when indexation is availed, or 10% if the indexation is not availed. Briefly describing, indexation is the method used for adjusting the purchase price of an investment to reflect the influence of inflation on it. This, increases the purchasing price of the asset, resulting in lower profits. LTCG doesn't apply to investors holding the units until maturity. The gains on units held till maturity are tax-exempt. LTCG even does not apply to Hindu Undivided Family and Trusts.
  3. Tax on Interest: The SGB holders will get an interest of 2.5% per annum on the face value of their bond. This interest amount is taxable and will be added to the investor’s income and will get taxed as per the applicable tax slab. 
  4. GST on stamp duty and brokerage: Do note on the purchase of SGBs from the secondary markets and/or stock exchanges brokerage is applicable. The broker charges brokerage and the rate of the brokerage may vary from broker to broker and person to person. It is assumed that a flat 18% Goods and Service charge is applicable on the brokerage amount. This tax gets paid by the investors while purchasing the SGBs.


Although there are several risks in a Sovereign Gold Bond (SGB), it has still successfully emerged as an authentic method of investing in gold with minimal risk and hassles. Above all, SGB is a great investment tool too to diversify the risk of the portfolio. SGB schemes, claimed to be profitable investment avenues bearing widespread benefits and low restrictions, are suitable to those who have low aptitudes for risk but desire to enjoy substantial returns on their corpus. This is so because they are one of the highest returns-bearing government-mandated schemes.

In comparison to physical gold investments and gold ETFs, an SGB is arguably more profitable, since it is backed by the highest financial authority. However, do bear in mind that while purchasing these sovereign bonds, you should consider them only after you've analysed the financial goals and time frame of the investment because considerable funds have to be kept locked in to obtain subsequent returns in the future. Interested individuals must also periodically keep themselves updated by reading through the RBI’s website to successfully invest in SGBs.