Investing In government securities and sovereign gold bonds: Things you should know
What are government securities and sovereign gold bonds?
Government securities, also known as G-secs, are tradable instruments issued by either the central government or State Governments. These securities can be long-term as well as short-term. Investing in Government securities is a wise way to diversify your investment portfolio and reduce risk. Government securities are typically considered safer than other types of instruments as they carry low risk. In India, the Reserve Bank of India manages the issuance of Government securities. There are several types of government securities such as Treasury Bills (T-Bills), Treasury Notes (T-Notes) and Treasury Bonds (T-Bonds).
Sovereign gold bonds are the Reserve Bank of India on behalf of the Government of India. These bonds offer investors an opportunity to invest in gold without physically possessing it. Sovereign Gold Bonds (SGBs) will be issued in increments of grams of gold, with the smallest unit being one gram. The gold bonds can be redeemed in cash and the returns are calculated as per simple average of the closing price of gold of 999 purity, of previous three working days published by IBJA Ltd. Only resident individuals, Hindu undivided families, trusts, universities and charitable institutions can buy SGBs. The tenure of the Sovereign Gold Bonds (SGBs) will be eight years, with the option of early redemption after the fifth year. Investors can exercise this option on the date when interest is payable.
How does the investment on government securities and sovereign gold bonds work?
In India, investors can buy government securities directly from the RBI or through primary dealers such as banks and financial institutions. To buy directly from the RBI, investors need to register for the Retail Direct Gilt (RDG) account with the central bank. This account allows them to participate in the primary issuance of government securities. Sovereign Gold Bonds (SGBs) are available for purchase through various channels including Scheduled Commercial Banks, Stock Holding Corporation of India Limited, Clearing Corporation of India Limited, post offices and stock exchanges (as notified). Investors can directly acquire SGBs through these authorised entities or through appointed agents.
What happens after you invest in sovereign gold bonds?
After you buy sovereign gold bonds from RBI or commercial banks, you can hold them in the form of either:
- Demat account
- Physical form (paper certificate)
- E-certificate
Investors will receive interests at a fixed rate of 2.50 percent per annum, payable semi-annually on the nominal value of the investment. On maturity of the bonds, you will receive the ongoing market price of gold.