Buying
SGBs
from the stock market: The government introduced
Sovereign Gold Bonds
(SGBs) in 2015 as a safer alternative to physically holding gold. SGBs eliminate the risks and costs associated with storing physical
gold
while guaranteeing investors the market value of gold at maturity and monthly interest payments. The bonds are held in the RBI’s records or in demat form, mitigating the risk of scrip loss and other related issues.
Investors can purchase Sovereign Gold Bonds from the primary market during the government-announced subscription periods or from the
secondary market
through the National Stock Exchange (
NSE
) and the Bombay Stock Exchange (
BSE
).
According to an ET report, if you fail to apply for SGBs during the primary issuance, you can still invest in them through the stock exchanges in the secondary market. The price of SGBs in the secondary market is determined by supply and demand, similar to other securities. Typically, SGBs trade at a discount to the spot price of gold, the ET report said.
How to buy Sovereign Gold Bonds from stock market
To purchase SGBs through the stock market, follow these steps:
Step 1: Identify the discounted or high-yielding SGB on NSE or BSE.
Step 2: Locate the SGB scrip code in your demat account and place a buy order.
Step 3: The bonds will be credited to your demat account within one working day (T+1) of the transaction.
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The tax treatment for exiting a gold bond investment varies depending on the method chosen. According to the report, the tax treatment differs if you exit your gold bond investment earlier.
There are two popular ways to exit a gold bond investment; the first is via the early redemption window at the end of 5 years, and the second is to sell your bonds in the secondary market. In both cases, capital gains will be taxable according to the usual definition of short-term and long-term capital gains. If it is the former, the rate applicable will be at its peak. If it is the latter, then the investor can choose between a flat tax rate of 10% or 20% after considering indexation.
The NSE website provides important information about Sovereign Gold Bonds through frequently asked questions section. SGBs can be traded on stock exchanges from a date notified by the RBI, but only bonds held in de-mat form with depositories are eligible for trading. Additionally, bonds can be sold and transferred according to the provisions of the Government Securities Act, 2006, with partial transfers also being possible.
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Investors can place bids for SGBs through either Depository Mode or Physical Mode. In Depository Mode, the RBI credits the Gold Bonds to the client’s demat account, while in Physical Mode, the RBI issues a physical Gold Bond Certificate to the clients. Bids can be cancelled until the last date of the issue period.
Although the term of an SGB is eight years, some investors who purchased SGBs earlier may not be able to hold the bonds for the entire tenure. In such cases, these individuals can use exchanges to sell their assets, similar to how stocks are traded.
