Investment in Sovereign Gold Bonds (SGBs) via the Reserve Bank of India’s Retail Direct online portal seems to be gaining traction among retail investors, going by the holdings of these bonds measured in terms of kilograms of the yellow metal.
Retail investors’ holding of SGBs on the Retail Direct portal jumped about 63 per cent year-on-year to 738.67 kg as on September 9, 2024, against 453.78 kg as on September 11, 2023.
SGBs are issued in denominations of one gram of gold and in multiples thereof. They are substitutes for holding physical gold. Investors pay the issue price in cash and the bonds are redeemed in cash on maturity. The bonds are issued by the RBI on behalf of the Government of India.
The minimum investment in the bond is one gram, with a maximum subscription limit of 4 kg for individuals and Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time in each fiscal year (April – March).
Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd, said the substantial increase in SGB holdings on the RBI Retail Direct platform can be due to the fact that it provides a free, user-friendly way for retail investors to participate in government securities and SGB auctions.
Unlike other platforms that may charge fees or require brokerage, the RBI’s platform is entirely cost-free, making it an attractive option for new and existing investors, he added.
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“SGBs offer advantages that make them appealing to retail investors. Firstly, these bonds are a safer alternative to physical gold as they are backed by the government, which eliminates concerns about storage and purity. Investors also receive a fixed interest of 2.5 per cent per annum, on top of any appreciation in the price of gold, providing a dual source of returns,” Azeez said.
Moreover, for individual buyers, investment in SGBs comes with tax benefits — capital gains on maturity is exempt from taxes, making them more appealing compared to gold ETFs (exchange traded funds) or gold funds.
Additionally, as geopolitical tensions drive the price of gold higher, SGBs provide a convenient, tax-efficient hedge against economic uncertainty.
Madan Sabnavis, Chief Economist, Bank of Baroda, said the demand for gold has risen in from all quarters – central banks, exchange traded funds and even individuals.
Pure investors who don’t want to get into the hassle of physical buying of gold, are going in for SGBs.