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How to Buy Sovereign Gold Bonds?

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Bonds are one of the most popular financial instruments available in the Indian markets, next only to equity. Traditionally, large institutional investors were the primary players in the bond market. However, of late, many retail investors have also shown interest in investing in bonds. One of the many advantages of bonds is that there are multiple types catering to different investor risk profiles. As a matter of fact, you can even find bonds that are ideal for conservative investors with low-risk tolerance; the sovereign gold bonds (SGB) being one of the many examples. 

Sovereign Gold Bonds (SGBs) are an increasingly popular investment option in the Indian financial market, providing a safe alternative to holding physical gold. Traditionally dominated by large institutional investors, the bond market has recently seen growing interest from retail investors as well. For those looking to invest in gold without worrying about storage or safety, SGBs offer a convenient solution with additional benefits

How Do SGBs Work?

Sovereign Gold Bonds (SGBs) were launched by the Reserve Bank of India (RBI) in November 2015 under the Gold Monetisation Scheme. These bonds are issued by the Government of India, allowing investors to benefit from the price appreciation of gold, while also earning an annual interest rate of 2.5% on the invested amount.

When you invest in SGBs, you’re essentially buying a bond that tracks the value of gold. The bond price is tied to the market value of gold, which means that any changes in gold prices will directly affect your returns. Since SGBs are backed by the Government of India, they carry no default risk, offering a secure investment option. Upon maturity, you receive the current market value of gold in Indian Rupees.

Before we look at how to invest in sovereign gold bonds, it is important to first understand what they are. 

Sovereign Gold Bonds were launched in November 2015 by the Reserve Bank of India (RBI) under the Gold Monetisation Scheme. Designed to leverage the gold affinity of Indians, these bonds enable investors to partake in the capital appreciation of gold. 

In addition to any potential capital appreciation due to the increase in gold prices, investors are also paid interest of about 2.5% per annum on their invested capital. Since the scheme is backed by the RBI, it carries no default risk.  

Also Read: Capital Gain Bonds (54EC) Explained

Key Highlights of Sovereign Gold Bonds 

Now, let’s quickly go through the highlights of SGBs before checking out how to invest in gold sovereign bonds. 

  • SGBs are issued in 2 to 4 tranches every financial year.
  • Only resident Indian entities like individuals, HUFs, trusts, charitable institutions and universities can invest in SGBs. 
  • The minimum denomination of each bond is 1 gram of gold.
  • The maximum amount of investment that can be made is 4 kilograms in the case of individuals and HUFs and 20 kilograms in the case of trusts.
  • The tenure of SGBs is 8 years with an option to exit prematurely during either the 5th, 6th or 7th year of investment. 
  • SGBs can be used as collateral for loans and traded on the stock exchanges. 

Also Read: How to Invest in Government Bonds in India?

How to buy Sovereign Gold Bonds Online?

Buying Sovereign Gold Bonds (SGBs) online is simple and can be done from the comfort of your home. Here’s a step-by-step guide on how to invest in SGBs through internet banking:

Step-by-Step Guide to Buying SGBs Online:

  1. Log in to your Bajaj Broking trading account
  2. Navigate to the ‘Sovereign Gold Bonds’ section
  3. Select the number of bonds you wish to purchase

Fill out the application form and submit it

Who Can Invest in a Sovereign Gold Bond Scheme?

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in Sovereign Gold Bonds. Eligible investors include:

  1. Individuals – Indian citizens who wish to invest in gold
  2. Hindu Undivided Families (HUFs) – Families that come under the HUF category
  3. Trusts and Charitable Institutions – These organizations can also purchase SGBs

What are the min & max investment limits for SGBs?

  • Minimum Investment: 1 gram of gold
  • Maximum Investment:
    • Individuals & HUFs – Up to 4 kilograms per financial year.
    • Trusts and similar entities – Up to 20 kilograms per financial year.

Is It Compulsory to Buy Gold Bonds Online?

No, it is not mandatory to purchase Sovereign Gold Bonds online. Investors can buy SGBs both online and offline. While the online process is easier, you can still buy SGBs by visiting a branch of a Bajaj Broking or Scheduled Commercial Bank, Stock Holding Corporation of India (SHCIL), or a designated post office. The offline application process involves submitting KYC documents and a Demand Draft or Cheque for the investment amount.

However, a notable advantage of applying online is the discount of Rs. 50 per gram on the nominal value of the bond.

Pros & Cons of Buying Sovereign Gold Bonds

Pros

Cons

No risk of handling or storing physical gold

Returns depend on gold prices

Interest income of 2.5% per annum

Locked-in for 8 years (with early exit options)

Backed by the Government of India, eliminating default risk

Possible capital loss if gold prices fall

How to Invest in Sovereign Gold Bonds in India?

If you wish to make an investment in SGBs, you can do it offline by physically visiting a bank branch or online from the comfort of your own home. Here’s an overview of the process you need to follow. 

How to Invest in Sovereign Gold Bonds Online

The Reserve Bank of India has empowered certain Scheduled Commercial Banks (SCBs) to enable interested investors to apply for the bonds online. If you have an internet banking account in any of the listed SCBs, you can follow the steps outlined below to invest in sovereign gold bonds. 

  • Step 1: Visit your bank’s internet banking portal. 
  • Step 2: Log into your account using your user credentials. 
  • Step 3: Look for the SGBs option. You can usually find it under the investments section of the net banking portal. 
  • Step 4: Fill out the online application form and submit it. 

That’s it. The required investment amount will be instantly debited from your bank account. Once the bonds are issued by the Reserve Bank of India, you will receive the same at the address registered with your bank. 

How to Invest in Sovereign Gold Bonds Offline

If you’re not technologically adept or don’t have an internet banking account, you can still invest in sovereign gold bonds by following the steps listed below. 

  • Step 1: Visit the branch of a Scheduled Commercial Bank, Stock Holding Corporation of India (SHCIL) or a designated post office. 
  • Step 2: Request for a sovereign gold bond application form. 
  • Step 3: Fill out and submit the application form along with KYC documents and a Demand Draft (DD) for the amount of investment you wish to make. 

Once you submit your application form, you will receive an acknowledgement. You need to keep the acknowledgement safe until the bonds are issued by the RBI. Once issued, they will be sent to the address specified in the KYC documents that you submitted. 

Potential Risks When Investing in Sovereign Gold Bonds (SGBs)

While Sovereign Gold Bonds offer a secure and low-risk investment, there are some potential risks to consider:

  1. Market Risk: The bond's value fluctuates with gold prices. If the market value of gold declines, so will the value of your bonds.
  2. Liquidity Risk: SGBs are not as liquid as other forms of investments. Although they are traded on stock exchanges, liquidity can be an issue.

Interest Rate Risk: While SGBs provide a fixed interest rate of 2.5%, changes in the broader interest rate environment may affect the attractiveness of your investment.

Things You Should Know Before Making an Investment in Sovereign Gold Bonds 

Now that you know how to buy sovereign gold bonds, let’s look at a few things you need to be aware of before investing in them. 

  • If you have a demat account, you can opt to hold SGBs in a dematerialised format by specifying the same in the application form. 
  • You’re eligible for a discount of Rs. 50 per gram on the nominal value of the bond if you apply online.
  • Investments of more than Rs. 20,000 cannot be made in cash. Instead, you need to submit a Demand Draft, Cheque or transfer funds online. 
  • SGBs are not entirely risk-free. If the market value of gold falls, your investment will also decline in value. 
  • If you prefer holding bonds in a digital format, you can opt for a dematerialised (Demat) format of SGBs.
  • Investors who apply online are eligible for a ₹50 discount per gram.

Also Read: Benefits of Investing in Bonds

Conclusion 

Sovereign Gold Bonds are a smart choice for investors looking to gain exposure to gold without dealing with physical storage or purity concerns. As a government-backed investment, SGBs come with no default risk, making them one of the most secure forms of investment. While they offer interest income and price appreciation, investors should be aware of the potential risks associated with gold price volatility. Overall, investing in Sovereign Gold Bonds can be a great way to diversify your portfolio.

SGBs are easily one of the best investment options currently available. It carries no default risk since it is guaranteed by the Government of India. However, the returns are market-linked and you may even lose your capital if the gold value declines after you invest. That said, making an investment in sovereign gold bonds is a good way to diversify your portfolio risk. 

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

Is It Mandatory to Purchase Sovereign Gold Bonds Online?

Answer Field

No, you can purchase SGBs both online and offline through Bajaj Broking, banks, SHCIL, and post offices.

How to invest in Sovereign Gold Bonds for beginners?

Answer Field

Beginners can invest in SGBs online via internet banking or offline by visiting a bank or post office.

How to invest in SGB through stock brokers or trading platforms?

Answer Field

Some stockbrokers and trading platforms offer SGBs as part of their investment products. You can apply for bonds through these platforms.

What documents are required to buy Sovereign Gold Bonds online?

Answer Field

You’ll need your PAN card, Aadhaar card, and bank details to complete the application.

What are the benefits of investing in Sovereign Gold Bonds online?

Answer Field

You get a ₹50 discount per gram, no physical gold storage hassles, and the convenience of applying from home.

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