Should You Buy SGB From the Stock Exchange?

Gold has always been India’s most popular investment avenue, with emotional and cultural sentiments attached to it. There are several ways to invest in gold: physical gold, gold mutual funds, gold exchange-traded funds (ETFs), digital gold or sovereign gold bonds.

With the first tranche of SGB that matured on November 30, 2023, SGB has gained popularity among individuals. Since there is no risk of theft and tax benefits, it is a good option for investing in Gold.

The RBI has announced two new tranches of SGB, i.e., series 3 & 4, for the financial year 2023-24; let us discuss SGBs and the benefits of buying them from the stock exchange.

What are Sovereign Gold Bonds?

Sovereign Gold Bonds (SGBs) are a type of government security that is issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are issued in denominations of one gram of gold and are linked to the market price of gold. SGBs are a popular investment option in India that offer several benefits, such as safety, liquidity, tax efficiency, high returns, and government backing. SGBs are linked to the market price of gold and also offer 2.5% p.a. of fixed interest (payable half-yearly) on the face value (issuance price) of SGB.

How to Buy SGBs?

The RBI, on behalf of the Government of India, issues SGBs during every financial year in different tranches. You can buy these bonds through commercial banks, post offices, online platforms and stock exchanges. Please note that the RBI offers a discount of Rs. 50 per unit of bond for the investors who buy online.

If you miss the chance to buy the SGB in the primary issue, you can also buy them from the secondary markets.

Points to Consider Before Buying SGBs from the Stock Market 

SGBs can also be purchased from the secondary market through the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

• The price of SGBs on the secondary market is determined by demand and supply, similar to any other securities.
• SGBs are typically traded at a discount to the spot price of gold.

Points to Consider Before Buying SGBs in the Primary Issue

SGBs are issued by the RBI (also called primary issuance) in various tranches throughout the financial year.

• You can purchase SGBs from commercial banks, post offices, online portals, and stock exchanges.
• A discount of ₹50 per gram is offered to investors who apply for bonds online

Benefits of Buying Sovereign Gold Bonds from the Stock Market

1. Gold at Discount: Like any other securities, the price of Sovereign Gold Bonds (SGBs) on stock exchanges is determined by the forces of demand and supply. However, due to their low trading volume, SGBs trade at a discount to the spot price of gold. This presents a great opportunity for investors to purchase the highest purity of gold at a lower price than the prevailing market rate. In fact, buying SGBs from the secondary market can prove to be a cost-effective way to invest in gold, especially for those who missed out on the primary issuance.

2. Taxation: One major advantage of investing in Sovereign Gold Bonds (SGBs) is the tax benefits. If an investor redeems SGBs at maturity or during the pre-mature window directly with the Reserve Bank of India (RBI), no taxes are levied on the capital gains. However, taxes must be paid on the interest received. The same applies when purchasing these bonds from the secondary market with a residual maturity.

3. Interest: Investors also get 2.5% p.a. interest on the face value (issuance price) of SGB even if they buy SGB from the secondary market.

Process of Buying SGBs in The Stock Exchange

To buy SGBs through the stock market, kindly follow the mentioned steps:

1. You can find the discounted SGB/high-yielding SGB here.
2. Search the SGB scrip code in your demat account and place a buy order.
3. The bonds will be credited to your demat account within T+1 working day of the transaction.

Should You Purchase SGBs from the Secondary Market?

Buying SGBs from the secondary market can be lucrative. The price of SGBs can vary based on the remaining maturity period. It is advisable to choose the bonds with a longer residual maturity period, as they often trade at a better discount than those with a shorter maturity period.

Buying SGBs from the secondary market can be a good option for investors looking to add gold to their portfolio at a lower price.

Final Words

The introduction of Sovereign Gold Bonds has made gold investment much more accessible. The investment is open in primary and secondary markets both. You can notice a low trading volume of SGBs in the stock exchanges. However, an investor may get many benefits if they purchase it from the secondary market, such as tax benefits. The benefits increase when an investor buys an illiquid series and a low trading price compared to the current market price or new issue price.

Reference Link

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1984145

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