All You need to know about SGB (Sovereign Gold Bond) Schemes
Sovereign Gold Bond (SGB) Scheme
The Government of India introduced the Sovereign Gold Bond (SGB) Scheme in November 2015, to offer investors an alternative to physical gold. So, You will be purchasing gold in kilograms but not holding on to the metal physically.
- Sovereign Gold Bonds are debt securities.
- RBI on behalf of the Indian Government issues these bonds.
- These are gold securities that are an alternative to physical gold and are held in certificate format.
The minimum investment in SGBs is one gram, and a maximum of 4 kg for individuals and Hindu Undivided Family HUF. However, the maximum limit of investment is 20 kg for trusts and similar entities.
This scheme was introduced to curb the Gold Imports in the Indian Market.
Table of Contents
Why Indians Buy Gold
Indians buy Gold for lots of reason –
Investment
Hedging Against Inflation
The chart below shows the kind of returns gold and nifty have been generating since 2006 till date. Gold is a great investment in times of economic distress.
Emotional Attachment
The old adage – all that glitters is not gold, also in a way underlines the importance accorded to Gold.
Gold also carries a high perceived value and a high emotional quotient. It reinforces the closeness of relationships. Indian Marriages are example of such. Gold coins in smaller denominations are also considered apt for Corporate gifting and rewards for contests or for commemorative giveaways.
This is what makes Gold the second most imported element after Crude Oil. Higher import also causes higher trade deficit. (We buy USD selling INR. So value of INR gets depreciated.)
To curb this, The government introduced gold bonds in 2015. Since then, RBI has released several tranches of gold bonds in the market.
Advantage of Investing in Sovereign Gold Bonds
Returns
Appreciation of Gold + Interest of 2.5% p.a. on the issue price (payable on a half-yearly basis)
Liquidity
Tenure of 8 years with exit options in 5, 6 & 7 years. Tradeable on stock exchanges.
Indexation* Benefit
Will be provided on Long Term Capital Gains arising to any person on transfer of bond.
Safety
Sovereign Guarantee on redemption of money (principal) as well as on the interest earned.
Taxation* Benefit
Exemption from Capital Gains Tax on redemption. No TDS Applicable on Interest paid.
Collateral
Accepted as collateral – Can be kept as collateral/security against Secured Loans.
Taxation on SGB
The interest on these bonds is taxable as per the Income Tax Act, 1961. On redemption, there is no capital gains tax on this. Also, the long-term capital gains come with indexation benefits.
- SGB i.e. government security is a short-term capital asset if held for up to 12 months and a long-term capital asset if held for more than 12 months.
- As per the Income tax act, the redemption of Sovereign Gold Bonds issued by the Reserve Bank of India by an assessee being an individual shall not be considered as transfer, and hence, it is exempt for the purpose of capital gains tax.
Here, SGB can also be traded in secondary markets. If you buy SGBs from the secondary market and then redeem it on maturity then they will be exempt from the capital gain tax. But, if you sell the bonds in secondary markets before the redemption period, then it will attract the capital gain tax.
Early redemption (on 5th, 6th, 7th year), needs to be done manually. After 8 years, redemption is automatic.
Pledging/Collateral
- SGB has only a
10%haircut. It means if You pledge100 INRthe worth of SGB, You will get back90 INRmargin. - Exchanges stipulate that for overnight F&O positions, 50% of the margin needs to compulsorily come in cash and the remaining 50% can be in terms of collateral margin.
- The collateral is also considered equivalent to Cash. You do not need to keep extra Fund! Read more here.
The tenor of the bond
The tenor is for a minimum of 8 years with an option to exit in the 5th, 6th, and 7th years.
This means is that the government will if you want, give back your investment. Since these bonds are now traded on the exchanges, there is no real reason to encash/redeem, you can just sell it on the exchanges. But if liquidity dries up on exchanges, you can encash/redeem.
*Even if you buy it in the 4th year, you can exit it on the 5th if you wish.
Dirty Price - Notes on Interest
The interest on SGB’s is paid twice a year. So, the date of interest is fixed.
If the interest is about to be given tomorrow and You buy the bond today, You will get the interest!
The price at which the SGB that trades on the secondary market carries the accrued interest, so if you’re buying the bonds closer to the due date of the interest, the price will be higher.
On the date the dividend is paid, the price of the bond drops. In the Bond market, it’s referred to as the ‘Dirty price’; i.e the price of the Bond includes accrued interest.
- Also, Remember that – The interest rate is based on the
issue price. It is not in the price You bought from the market.
Unable to buy SGBs from Secondary Market
- When you buy SGBs directly when it is being issued, that is called Primary Market.
- When you buy SGBs from exchange, it is called buying from Secondary Market.
Sometimes, Broker can block you while purchasing again. It is because – Every broker is required to have a pool account with NSDL and CDSL which are the 2 depositories. As a client, you’d normally have an account with either NSDL/CDSL with a broker.
Suppose Your broker has account with CDSL. And if the units get credited to the broker’s NSDL pool account, the units cannot be transferred to your CDSL demat account. As, Government Securities are not allowed to have inter depositary transfer. So, You need to sell them before You can buy again.
SGB Codes and Listing
SGB is available for trading in the secondary market immediately after 15-20 days of issuance. SGB naming scheme is simple, for example, take SGBSEP28 bond.
Here SGB stands for Sovereign Gold Bond, SEP is the month and 28 is SGB’s maturity year.
SGB’s mature after 8 years from the date of issuance, so the above-mentioned bond SGBSEP28, was issued in September 2020 and will mature in September 2028. You can check the list of all the SGB’s which are listed and are trading on exchanges here.
Here is compiled data from the RBI website and NSE website. When You search for SGB in the broker watchlist, You will find all the SGBs ever offered by the Government.
In the case of NSE symbols, when searching them in Kite, there will be a -GB suffix at the end.
| S.No. | Tranche | Date of Issuance | Date of Listing | Date of Maturity | NSE Symbol | BSE Symbol |
|---|---|---|---|---|---|---|
| 1 | 2015-I | Nov 30, 2015 | Jun 13, 2016 | Nov 30, 2023 | SGBNOV23 | SGB20151 |
| 2 | 2016-I | Feb 08, 2016 | Aug 29, 2016 | Feb 08, 2024 | SGBFEB24 | SGB2016I |
| 3 | 2016-II | Mar 29, 2016 | Aug 29, 2016 | Mar 29, 2024 | SGBMAR24 | SGB2016II |
| 4 | 2016-17 Series I | Aug 5, 2016 | Sep 01, 2016 | Aug 5, 2024 | SGBAUG24 | SGBAUG24 |
| 5 | 2016-17 Series II | Sep 30, 2016 | Oct 19, 2016 | Sep 30, 2024 | SGBSEP24 | SGB2016IIA |
| 6 | 2016-17 Series III | Nov 17, 2016 | Dec 09, 2016 | Nov 17, 2024 | SGBNOV24 | SGB2016IIIA |
| 7 | 2016-17 Series IV | Mar 17, 2017 | Apr 13, 2017 | Mar 17, 2025 | SGBMAR25 | SGB2016IV |
| 8 | 2017-18 Series I | May 12, 2017 | Jun 02, 2017 | May 12, 2025 | SGBMAY25 | SGBMAY25 |
| 9 | 2017-18 Series II | Jul 28, 2017 | Aug 08, 2017 | Jul 28, 2025 | SGBJUL25 | SGBJULY25 |
| 10 | 2017-18 Series III | Oct 16, 2017 | Oct 30, 2017 | Oct 16, 2025 | SGBOCT25 | SGBOCT25A |
| 11 | 2017-18 Series IV | Oct 23, 2017 | Oct 30, 2017 | Oct 23, 2025 | SGBOCT25IV | SGBOCT25 |
| 12 | 2017-18 Series V | Oct 30, 2017 | Nov 07, 2017 | Oct 30, 2025 | SGBOCT25V | SGBOCT25B |
| 13 | 2017-18 Series VI | Nov 06, 2017 | Nov 14, 2017 | Nov 06, 2025 | SGBNOV25VI | SGBNOV25 |
| 14 | 2017-18 Series VII | Nov 13, 2017 | Nov 17, 2017 | Nov 13, 2025 | SGBNOV25 | SGBNOV25A |
| 15 | 2017-18 Series VIII | Nov 20, 2017 | Nov 24, 2017 | Nov 20, 2025 | SGBNOV258 | SGBNOV25B |
| 16 | 2017-18 Series IX | Nov 27, 2017 | Nov 30, 2017 | Nov 27, 2025 | SGBNOV25IX | SGBNOV25C |
| 17 | 2017-18 Series X | Dec 04, 2017 | Dec 11, 2017 | Dec 04, 2025 | SGBDEC25 | SGBDEC25 |
| 18 | 2017-18 Series XI | Dec 11, 2017 | Dec 15, 2017 | Dec 11, 2025 | SGBDEC25XI | SGBDEC25A |
| 19 | 2017-18 Series XII | Dec 18, 2017 | Dec 21, 2017 | Dec 18, 2025 | SGBDEC2512 | SGBDEC25B |
| 20 | 2017-18 Series XIII | Dec 26, 2017 | Jan 01, 2018 | Dec 26, 2025 | SGBDEC2513 | SGBDEC25C |
| 21 | 2017-18 Series XIV | Jan 01, 2018 | Jan 08, 2018 | Jan 01, 2026 | SGBJAN26 | SGBJAN26 |
| 22 | 2018-19 Series I | May 04, 2018 | May 11, 2018 | May 04, 2026 | SGBMAY26 | SGBMAY26 |
| 23 | 2018-19 Series II | Oct 23, 2018 | Oct 31, 2018 | Oct 23, 2026 | SGBOCT26 | SGBOCT26 |
| 24 | 2018-19 Series III | Nov 13, 2018 | Nov 27, 2018 | Nov 13, 2026 | SGBNOV26 | SGBNOV26 |
| 25 | 2018-19 Series IV | Jan 01, 2019 | Jan 17, 2019 | Jan 01, 2027 | SGBDEC26 | SGBDEC26 |
| 26 | 2018-19 Series V | Jan 22, 2019 | Jan 31, 2019 | Jan 22, 2027 | SGBJAN27 | SGBJAN27 |
| 27 | 2018-19 Series VI | Feb 12, 2019 | Feb 22, 2019 | Feb 12, 2027 | SGBFEB27 | SGBFEB27 |
| 28 | 2019-20 Series I | Jun 11, 2019 | Jun 18, 2019 | Jun 11, 2027 | SGBJUN27 | SGBJUNE27 |
| 29 | 2019-20 Series II | Jul 16, 2019 | Aug 05, 2019 | Jul 16, 2027 | SGBJUL27 | SGBJULY27 |
| 30 | 2019-20 Series III | Aug 14, 2019 | Aug 23, 2019 | Aug 14, 2027 | SGBAUG27 | SGBAUG27 |
| 31 | 2019-20 Series IV | Sep 17, 2019 | Sep 23, 2019 | Sep 17, 2027 | SGBSEP27 | SGBSEP27 |
| 32 | 2019-20 Series V | Oct 15, 2019 | Oct 25, 2019 | Oct 15, 2027 | SGBOCT27 | SGBOCT27 |
| 33 | 2019-20 Series VI | Oct 30, 2019 | Nov 06, 2019 | Oct 30, 2027 | SGBOCT27VI | SGBOCT27A |
| 34 | 2019-20 Series VII | Dec 10, 2019 | Dec 19, 2019 | Dec 10, 2027 | SGBDC27VII | SGBDEC27 |
| 35 | 2019-20 Series VIII | Jan 21, 2020 | Jan 27, 2020 | Jan 21, 2028 | SGBJ28VIII | SGBJAN28 |
| 36 | 2019-20 Series IX | Feb 11, 2020 | Feb 17, 2020 | Feb 11, 2028 | SGBFEB28IX | SGBFEB28 |
| 37 | 2019-20 Series X | Mar 11, 2020 | Mar 25, 2020 | Mar 11, 2028 | SGBMAR28X | SGBMAR28 |
| 38 | 2020-21 Series I | Apr 28, 2020 | May 13, 2020 | Apr 28, 2028 | SGBAPR28I | SGBAPR28 |
| 39 | 2020-21 Series II | May 19, 2020 | May 27, 2020 | May 19, 2028 | SGBMAY28 | SGBMAY28 |
| 40 | 2020-21 Series III | Jun 16, 2020 | Jun 24, 2020 | Jun 16, 2028 | SGBJUN28 | SGBJUN28 |
| 41 | 2020-21 Series IV | Jul 14, 2020 | Jul 28, 2020 | Jul 14, 2028 | SGBJUL28IV | SGBJULY28 |
| 42 | 2020-21 Series V | Aug 11, 2020 | Aug 21, 2020 | Aug 11, 2028 | SGBAUG28V | SGBAUG28 |
| 43 | 2020-21 Series VI | Sep 08, 2020 | Sep 23, 2020 | Sep 08, 2028 | SGBSEP28VI | SGBSEP28 |
| 44 | 2020-21 Series VII | Oct 20, 2020 | Oct 29, 2020 | Oct 20, 2028 | SGBOC28VII | SGBOCT28 |
| 45 | 2020-21 Series VIII | Nov 18, 2020 | Dec 02, 2020 | Nov 18, 2028 | SGBN28VIII | SGBNOV28 |
| 46 | 2020-21 Series IX | Jan 05, 2021 | Jan 15, 2021 | Jan 05, 2029 | SGBJAN29IX | SGBJAN29 |
| 47 | 2020-21 Series X | Jan 19, 2021 | Jan 27, 2021 | Jan 19, 2029 | SGBJAN29X | SGBJAN29A |