While the allure of gold has historically transcended geographical boundaries, investing in Sovereign Gold Bonds (SGBs) has traditionally been limited to resident Indian investors. However, with evolving regulations and increasing interest from the Indian diaspora, the possibility of investing in SGBs from outside India is becoming a reality for certain investor categories.

This comprehensive guide will navigate you through the intricacies of investing in Sovereign Gold Bonds (SGBs) from outside India in 2024. We will delve into the eligibility criteria, investment process, benefits, tax implications, and key considerations to help you make informed decisions.

Understanding Sovereign Gold Bonds (SGBs): A Primer

credit to: Alok Dubey, CFP®

Before exploring the avenues for non-resident Indians (NRIs) and other eligible entities to invest, it’s crucial to understand what Sovereign Gold Bonds are. SGBs, or Sovereign Gold Bonds, are government securities that are valued in grams of gold. They are issued by the Reserve Bank of India (RBI) on behalf of the Government of ¹ India.  

www.samco.in

Key features of SGBs include:

• Denomination: Bonds are issued in denominations starting at one gram of gold and can go up from there.
• Tenor: The bond usually has a tenor of 8 years, but there’s an option to redeem it early after the fifth year.
• Interest Rate: Investors receive a fixed interest rate, payable semi-annually, on the initial investment amount. This brings a steady income aspect to your gold investment.
• Redemption Price: On maturity, the bonds are redeemed in Indian Rupees based on the prevailing market price of gold (average of the closing price of 999 purity gold for the last three working days published by the India Bullion and Jewellers Association Ltd).
• Security: Being government securities, SGBs carry a sovereign guarantee, making them a relatively safe investment option.
• Ease of Holding: SGBs can be held in dematerialized (demat) form, eliminating the risks and hassles associated with physical gold storage.

The Evolving Landscape: Can NRIs Invest in SGBs?

Historically, SGBs were primarily targeted towards resident Indian individuals, trusts, universities, and charitable institutions. However, the RBI has gradually broadened the eligibility criteria to include certain categories of non-resident investors.

As of 2024, the following categories of non-resident entities are generally eligible to invest in Sovereign Gold Bonds:

• Non-Resident Indians (NRIs): This is the most significant category of overseas investors eligible for SGBs. NRIs, as defined under the Foreign Exchange Management Act (FEMA), are permitted to invest.
• Overseas Citizens of India (OCIs): Individuals registered as Overseas Citizens of India (OCIs) are also typically eligible to invest in SGBs.
• Persons of Indian Origin (PIOs): While the PIO card scheme has been merged with the OCI scheme, individuals who held PIO cards may also be eligible, subject to specific regulations. It’s advisable to consult with a financial advisor for clarity on their specific situation.

The Investment Process for NRIs and Eligible Non-Residents:

The process for investing in SGBs from outside India largely mirrors that of resident Indians, with some specific considerations for non-resident status:

1. Know Your Customer (KYC) Compliance: As an NRI or eligible non-resident, you will need to comply with the KYC requirements as mandated by Indian regulations. This typically involves submitting documents such as:
   
   • Passport (as proof of identity and address)
   • PIO/OCI card (if applicable)
   • PAN card (Permanent Account Number)
   • Overseas address proof
   • Bank account details in India (NRE/NRO account)
2. Opening a Demat Account: To hold SGBs in dematerialized form, you will need to open a demat account with a SEBI-registered Depository Participant (DP) in India. Several banks and financial institutions offer demat account services to NRIs. You will need to provide the aforementioned KYC documents during the account opening process.
   
3. Subscription During Tranches: SGBs are not available for subscription throughout the year. The RBI announces specific tranches (issuance periods) during which you can apply for the bonds. Keep an eye on announcements from the RBI and financial news outlets for upcoming tranches.
   
4. Application Process: Once a tranche is announced, you can apply through various channels, including:
   
   • Online Platforms of Banks and DPs: Many banks and DPs offer online platforms where NRIs with demat and linked bank accounts can apply for SGBs.
   • Physical Application Forms: You can also download application forms from the RBI website or obtain them from designated banks and submit them along with the required documents.
5. Payment: Payment for SGBs must be made in Indian Rupees through your Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account in India. Funds cannot be remitted from overseas directly for SGB investments.
   
6. Allotment: Once the subscription period wraps up, the RBI will take care of processing the applications and will allocate the bonds to those who were successful. You’ll find the SGBs credited directly to your demat account.
   

Benefits of Investing in SGBs from Outside India

Investing in SGBs offers several compelling advantages for NRIs and eligible non-residents:

• Diversification: SGBs provide an opportunity to diversify your investment portfolio beyond traditional asset classes like equities and fixed income.
• Rupee Appreciation Potential: As the bonds are redeemed in Indian Rupees based on the prevailing gold price, you can potentially benefit from both gold price appreciation and Rupee appreciation against your base currency.
• Fixed Interest Income: The semi-annual interest payments provide a regular stream of income in Indian Rupees.
• Sovereign Guarantee: The backing of the Indian government ensures the safety of your investment.
• No Physical Gold Hassle: Holding SGBs in demat form eliminates the costs and risks associated with storing physical gold, such as storage fees, insurance, and the risk of theft.
• Potential Tax Benefits (for Resident Indians): While the tax implications for NRIs are discussed below, resident Indian investors enjoy certain tax benefits on SGBs, such as no capital gains tax on maturity. While NRIs don’t get this specific benefit, the overall tax structure can still be favorable.

Tax Implications for NRIs Investing in SGBs

The tax implications for NRIs investing in SGBs in India are subject to Indian tax laws and any Double Taxation Avoidance Agreements (DTAA) that India has with your country of residence. Here are some key points to consider:

• Interest Income: The interest income earned on SGBs is taxable in India as “income from other sources.” The applicable tax rate will depend on your total income in India and the relevant tax slabs for non-residents. You may be eligible for tax treaty benefits under the DTAA with your country of residence, which could result in a lower tax rate or exemption.
• Capital Gains on Redemption: When the SGBs are redeemed on maturity, any gains made due to the appreciation of gold price will be considered capital gains. The taxability of these gains will depend on the holding period and the applicable tax rates for non-residents. Long-term capital gains, which are assets held for over 36 months, usually enjoy a lower tax rate compared to short-term capital gains. Again, DTAA benefits may apply.
• Capital Gains on Premature Redemption/Transfer: If you choose to redeem the SGBs prematurely after the fifth year or transfer them in the secondary market (if allowed for NRIs), any capital gains arising from such transactions will be taxable according to the applicable short-term or long-term capital gains tax rates for non-residents. DTAA benefits may also be relevant here.

Key Considerations for Non-Resident Investors:

Before investing in SGBs from outside India, consider the following:

• Repatriation of Funds: Understand the regulations regarding the repatriation of funds from your NRE/NRO account, including the proceeds from the redemption of SGBs and the interest income.
• Fluctuations in Exchange Rates: Be aware of the potential impact of exchange rate fluctuations between your base currency and the Indian Rupee on your overall returns.
• Investment Horizon: SGBs have a tenor of 8 years, although premature redemption is possible after 5 years. Make sure your investment timeline matches this timeframe.
• Minimum and Maximum Investment Limits: Be aware of the minimum and maximum investment limits per investor per tranche as announced by the RBI.
• When it comes to secondary market liquidity: SGBs are indeed listed on stock exchanges, but you might find that the liquidity isn’t as robust as you’d hope. Most people tend to opt for premature redemption through the RBI after five years as their go-to exit strategy.
• Regulatory Changes: Keep abreast of any changes in regulations by the RBI and the Indian government regarding NRI investments in SGBs.

Conclusion

Investing in Sovereign Gold Bonds from outside India offers a unique opportunity for NRIs and other eligible non-residents to participate in the Indian gold market while earning a fixed interest income and benefiting from potential Rupee appreciation. By understanding the eligibility criteria, investment process, tax implications, and key considerations outlined in this guide, you can make informed decisions and potentially add a valuable asset to your global investment portfolio.

Remember to comply with KYC requirements, open a demat account, and stay updated on the RBI’s tranche announcements. Consulting with financial and tax advisors is crucial to navigate the specific regulations and ensure your investment aligns with your financial goals and tax obligations in both India and your country of residence.

Also read- https://harnews24.com/gold-vs-bitcoin-vs-real-estate-where-to-invest-in-2025-for-maximum-returns/

Also read- https://harnews24.com/dont-make-these-3-mistakes-while-taking-maternity-cover-in-health-insurance/

FAQs

Q1: Looking to invest in Sovereign Gold Bonds?

Generally, yes. NRIs, as outlined in the Foreign Exchange Management Act (FEMA), can invest in SGBs.

Q2: Are Overseas Citizens of India (OCIs) and Persons of Indian Origin (PIOs) also eligible?

Yes, Overseas Citizens of India (OCIs) are typically eligible. Persons of Indian Origin (PIOs) who held PIO cards may also be eligible, subject to specific regulations. It’s a good idea to check in with a financial advisor about their unique situation.

Q3: Do I need an Indian bank account to invest in SGBs as an NRI?

Yes, you will need to have a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account in India to make payments for SGBs.