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

From 19/03/2007 to today (14/06/2021), Gold has 11.13% CAGR while Index has 10.77%. So it is quite fair competition.

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 pledge 100 INR the worth of SGB, You will get back 90 INR margin.
  • 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.

SGB 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