We are a reader supported site. When you invest through our links, we may earn a commission at no extra cost to you.
Last Updated: November 16, 2023
Gold has always been a sought-after investment option, offering a hedge against inflation and economic downturns.
If you’re looking to diversify your portfolio with gold, Zerodha provides an excellent avenue through Sovereign Gold Bonds (SGBs).
Here’s a step-by-step guide on how to buy gold in Zerodha.
Key Highlights
- Sovereign Gold Bonds (SGBs) in Zerodha: Zerodha offers a seamless and user-friendly platform for investing in SGBs, providing investors with a digital alternative to physical gold. This method combines the market returns of gold with a fixed interest, making it a compelling investment option.
- Tax Benefits and Returns: SGBs come with significant tax advantages, including exemption from capital gains tax if held until maturity. Additionally, investors benefit from a fixed interest rate of 2.5% per annum on the investment amount, payable semi-annually.
- Liquidity and Flexibility: While SGBs have an 8-year maturity period, they offer an option for early redemption after the 5th year. Moreover, these bonds are listed on stock exchanges, allowing investors to sell them before maturity if needed.
1. Introduction to Sovereign Gold Bonds (SGBs)
Gold, as an asset class, has been a store of value and a symbol of wealth for centuries. While physical gold has its charm, it comes with concerns about purity, safety, and high transaction costs. Recognizing these challenges and the need to reduce the demand for physical gold, the Government of India introduced Sovereign Gold Bonds (SGBs).
What are Sovereign Gold Bonds?
Sovereign Gold Bonds are government securities denominated in grams of gold. They serve as an alternative to owning physical gold. When you invest in SGBs, you are essentially buying a certain quantity of gold in paper or dematerialized form. Each bond represents a specific weight of gold, for instance, 1 gram.
Key Features of SGBs:
- Issuance: SGBs are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- Denomination: The bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
- Subscription: The bonds are sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognized stock exchanges.
- Interest: SGBs offer a fixed interest rate, currently at 2.5% per annum, payable semi-annually on the nominal value.
Benefits of Investing in SGBs:
- Safety: Unlike physical gold, there’s no risk of theft, and you don’t have to incur any storage costs like bank locker charges.
- Purity: With SGBs, you’re free from concerns about the purity of gold, which is a common issue with physical gold.
- Affordability: You can start investing in gold with just 1 gram through SGBs, making it accessible to a broader audience.
- Collateral: SGBs can be used as collateral for loans. The Loan to Value (LTV) ratio would be the same as applicable to ordinary gold loans.
Redemption:
- Maturity: The bonds come with an 8-year maturity period. However, to cater to the needs of different investors, there’s an option for early redemption after the 5th year.
- Price: The redemption price is based on the then prevailing price of gold.
In essence, SGBs provide an efficient way to invest in gold without the hassles associated with physical gold. They combine the market returns of gold with a fixed interest, making them a compelling investment option for those looking to diversify their portfolio.
2. How to Buy Gold (SGBs) in Zerodha:
Zerodha, one of India’s leading online brokerage platforms, offers a straightforward and user-friendly process for investing in Sovereign Gold Bonds (SGBs). If you’re considering diversifying your investment portfolio with gold without the challenges of physical ownership, SGBs via Zerodha might be the perfect solution. Here’s a comprehensive guide on how to make your purchase:
Step-by-Step Guide to Buying SGBs in Zerodha:
1. Accessing the Zerodha Platform:
- Web Platform: Navigate to the official Zerodha website by entering
kite.zerodha.comin your browser. - Mobile App: If you prefer using a mobile device, download the Zerodha Kite app from the App Store or Google Play Store. (Note: As of the last update, the SGB purchase option is in the pipeline for the mobile app.)
2. Log in to Your Account:
- Enter your registered User ID and password. If you’re accessing your account from a new device or location, you might be prompted to enter a One-Time Password (OTP) sent to your registered mobile number for added security.
3. Navigate to the ‘Bids’ Section:
- Once you’re on the dashboard, look for the “Bids” option, typically located in the main menu or the sidebar, depending on the platform’s layout.
4. Select ‘Govt. Securities’:
- Under the ‘Bids’ section, you’ll find various investment options. Click on “Govt. securities” to explore the available SGBs and other government bonds.
5. Browse Available SGB Options:
- Zerodha will display a list of available SGBs with details like issue date, maturity date, and interest rate. Review the options and select the one that aligns with your investment goals.
6. Place Your Bid:
- Click on “Place bid” next to your chosen SGB.
- A new window or pop-up will appear, prompting you to enter the desired amount you wish to invest in gold bonds. This amount is typically in multiples of grams, with 1 gram being the minimum.
7. Confirm Your Purchase:
- After entering the desired investment amount, review your selection and click on “Place bid” again to finalize your purchase.
8. Payment and Confirmation:
- You’ll be redirected to a payment gateway. Complete the payment using your preferred method (net banking, UPI, etc.).
- Once the payment is successful, you’ll receive a confirmation notification on the platform and an email detailing your SGB purchase.
Additional Tips:
- Stay Updated: Zerodha often provides notifications about upcoming SGB issues. Keeping an eye on these notifications ensures you don’t miss out on new investment opportunities.
- Research: Before making a purchase, it’s advisable to research the current gold prices, historical performance of gold as an asset, and the specific details of the SGB issue you’re considering.
- Customer Support: If you face any challenges or have queries during the purchase process, Zerodha’s customer support is readily available to assist.
Buying SGBs through Zerodha is a seamless experience, combining the platform’s user-friendly interface with the numerous benefits of investing in gold bonds. Whether you’re a seasoned investor or just starting, Zerodha makes the process of diversifying your portfolio with gold both simple and efficient.
Note: Currently, the option to buy government bonds and SGBs is available on the Kite web platform. Zerodha is working on making it accessible via the Kite mobile app soon.
3. Additional Information:
While the primary steps to purchase SGBs through Zerodha are straightforward, there are several nuances and additional details that prospective investors should be aware of. This section delves deeper into the intricacies of SGBs and provides a broader perspective for informed decision-making.
Trading Timings for SGBs:
- Order Window: The specific timings for placing orders for various securities, including SGBs, can vary. It’s crucial to be aware of these windows to ensure successful transactions.
- Updates: Zerodha’s platform often provides real-time updates on trading timings, especially if there are changes due to trading holidays or other reasons.
Comparison with Other Gold Investment Options:
- Physical Gold: While physical gold offers tangible ownership, it comes with challenges like storage costs, concerns about purity, and the risk of theft.
- Digital Gold: This is gold in a digital format, where you can buy, sell, or hold gold in dematerialized form. However, it might not offer the same government backing as SGBs.
- Gold Funds: These are mutual funds that invest in gold and offer liquidity as they can be traded on stock exchanges. However, they come with management fees and might not track gold prices as closely as SGBs.
Tax Implications for SGBs:
- Capital Gains Tax: One of the significant advantages of SGBs is the exemption from capital gains tax if held until maturity. This is a unique benefit not available with most other gold investment options.
- Interest Taxation: The fixed interest earned on SGBs is taxable as per the investor’s slab rate.
Liquidity and Redemption:
- Premature Redemption: SGBs come with an 8-year maturity period. However, there’s an option for early redemption after the 5th year, providing flexibility to investors.
- Secondary Market Trading: SGBs are listed on stock exchanges, offering an option for investors to sell their bonds before maturity. However, the market price might vary based on prevailing gold prices and demand-supply dynamics.
Risk Factors:
- Market Risk: Like all investments linked to market prices, SGBs are subject to gold price volatility. While gold is generally considered a safe-haven asset, its price can fluctuate based on global economic conditions, interest rates, and geopolitical events.
- Interest Rate Risk: The fixed interest rate on SGBs might seem less attractive if market interest rates rise significantly during the bond’s tenure.
Benefits of Diversification with SGBs:
- Hedge Against Inflation: Gold has historically been seen as a hedge against inflation, preserving purchasing power over time.
- Portfolio Diversification: Including gold in your portfolio can provide diversification benefits, reducing the overall risk.
Zerodha’s Educational Resources:
- Zerodha offers a plethora of educational content, including webinars, articles, and tutorials, to help investors understand the nuances of SGBs and make informed decisions.
While SGBs offer a unique and attractive way to invest in gold, it’s essential to understand the finer details and implications. Zerodha’s platform, combined with its educational resources, ensures that investors are well-equipped to navigate the world of gold investments effectively.
Conclusion
Investing in gold through Zerodha’s platform offers a seamless and secure experience. With SGBs, you not only get exposure to gold but also earn additional interest, making it a lucrative option for diversification.
Always stay updated with Zerodha’s platform for any changes in the process or additional offerings.
