Sovereign Gold Bonds (SGBs) have been a popular investment option in India since their introduction in November 2015. Backed by the Government of India, these bonds offer a smart alternative to buying physical gold, providing a fixed annual interest rate of 2.5% along with the potential for capital appreciation.
Investors are drawn to SGBs due to several advantages, such as tax benefits, zero storage concerns, and the safety of a sovereign guarantee. However, it’s important to note that Non-Resident Indians (NRIs) are not permitted to invest in sovereign gold bonds. That said, Indian residents who later attain NRI status can continue to hold their bonds until maturity.
In a significant update, Budget 2025 announced the discontinuation of the Sovereign Gold Bond scheme. With gold prices climbing steadily, the central government cited the rising cost of borrowing as the key reason behind phasing out SGBs.
What are Sovereign Gold Bonds?
Sovereign Gold Bonds (SGBs) are government-backed securities issued by the Reserve Bank of India that allow you to invest in gold without the hassles of physical ownership. These bonds represent gold ownership in paper form, with their value directly linked to the current market price of gold.
SGBs offer you multiple advantages over physical gold, including:
- Guaranteed Returns: You earn a fixed interest rate of 2.50% per annum, paid semi-annually on the initial investment
- Capital Appreciation: The value of your bonds rises with gold prices, potentially providing significant returns at maturity
- Online Discount: You receive a Rs.50 per gram discount when applying online through digital payment methods
- Zero Storage Cost: Unlike physical gold, there are no storage or security concerns
- Government Backing: Your investment is secured by the Government of India
The bonds have a standard tenure of 8 years, though you can exit after 5 years through the early redemption option on interest payment dates. It’s important to note that while SGBs were previously available through regular issuance windows, Budget 2025 announced the discontinuation of the SGB scheme due to the high cost of borrowing associated with the instrument.
Current Eligibility Criteria
The Reserve Bank of India has established specific eligibility criteria for investing in Sovereign Gold Bonds. Before considering this investment option, it’s important to understand who can invest and the applicable limits.
Who Can Invest in SGBs?
- Resident Indian Individuals - Indian citizens currently residing in India
- Hindu Undivided Families (HUFs) - Family units recognized under Hindu law
- Trusts - Both public and private trusts registered in India
- Universities - Educational institutions recognized by appropriate authorities
- Charitable Institutions - Organizations registered for charitable purposes
Investment Limits
- Minimum Investment: 1 gram of gold
- Maximum Investment (Per Fiscal Year):
- For Individuals: 4 kg of gold
- For HUFs: 4 kg of gold
- For Trusts and Similar Entities: 20 kg of gold
RBI Guidelines for NRI Investments
The Reserve Bank of India, in accordance with the Foreign Exchange Management Act (FEMA) of 1999, has established specific guidelines regarding NRI participation in Sovereign Gold Bonds. These regulations are designed to manage foreign exchange transactions while protecting India’s economic interests.
Fundamental Restrictions
- Prohibition on New Investments: Non-Resident Indians cannot make new investments in Sovereign Gold Bonds
- Retention Rights: NRIs who invested as resident Indians can retain their existing bonds until maturity
- Early Redemption Option: NRIs with existing bonds can opt for early redemption after 5 years
Direct Investment Restrictions
- FEMA Compliance: FEMA regulations explicitly prohibit NRIs from purchasing new SGBs
- Existing Holdings: NRIs who invested as resident Indians can:
- Keep their holdings until the full 8-year maturity
- Choose early redemption after completing 5 years
- Fund Repatriation: Any proceeds derived from these investments must remain in India
Inheritance and Nomination Rights
SGB holders can utilize the nomination facility available under the Government Securities Act, 2006:
- Demat Nomination: The demat account nominee automatically becomes the SGB nominee for bonds in demat form
- NRI Nominee Obligations:
- Must retain the bonds until maturity
- Must follow standard exit procedures established by RBI
- Must ensure interest and maturity amounts remain in India
Transfer and Trading Limitations
NRIs face several restrictions when their status changes from resident to non-resident:
- Repatriation Limits: Transfers from NRO accounts are restricted to USD 1 million per fiscal year
- Tax Implications: Gifts or sales through stock exchanges are subject to capital gains taxation
- Account Requirements: Secondary market trades require a demat account specifically linked to:
- NRO accounts (Non-Resident Ordinary)
- NRE accounts (Non-Resident External)
Status Change - From Resident to NRI
When your residency status changes from resident to non-resident, you need to understand the implications for your existing SGB investments.
Impact on Existing Investments
Your bonds remain valid after your status changes. You can enjoy the standard eight-year tenure and exit after five years if needed. The regulatory framework protects your current investments even though you can’t buy new SGBs.
Documentation Requirements
You need to complete these essential steps to properly manage your SGB holdings after your status changes:
- Update your KYC: Update your residential status with the KYC Registration Agency
- Submit status change applications: Notify your bank about your status change
- Link appropriate accounts: Connect your SGB holdings to your NRO/NRE accounts
- Maintain tax documentation: Keep proper records for tax compliance
Legal Framework and Regulations
The legal framework governing SGB investments, particularly for NRIs, is primarily based on the Foreign Exchange Management Act (FEMA) and RBI guidelines.
FEMA Guidelines on Gold Investments
- Regulatory Purpose: Controls foreign exchange transactions related to gold investments
- NRI Restrictions: Specifically prohibits new SGB purchases by non-residents
- Economic Strategy: Aligns with government’s approach to manage domestic gold demand
- Currency Protection: Helps maintain control over foreign exchange reserves
RBI Notifications and Circulars
- Policy Direction: Provides clear directives about SGB investments for various investor categories
- NRI Holdings: Confirms that non-residents cannot purchase new bonds
- Existing Investments: Protects the rights of those who invested as residents
- Strategic Goals:
- Controls gold imports
- Maintains domestic liquidity
- Protects foreign exchange reserves
Compliance Requirements
- Tax Regulations: Income from SGB investments falls under NRI tax regulations
- Documentation: Proper record-keeping required for all transactions
- Holding Verification: Regular verification that holdings match current FEMA guidelines
- Reporting Obligations: Adherence to all applicable disclosure requirements
Status Change - From Resident to NRI
Changing your residential status from resident Indian to Non-Resident Indian creates specific considerations for your Sovereign Gold Bond holdings. Understanding these regulations thoroughly will help protect your investment rights and ensure compliance with all applicable requirements.
Impact on Existing Investments
Your status change from resident to non-resident won’t affect your right to hold existing Sovereign Gold Bonds. The regulations provide several important protections:
- Continued Ownership Rights: You can maintain ownership of all bonds purchased while you were a resident
- Full Maturity Option: You can hold your bonds for the complete 8-year tenure without forced liquidation
- Early Redemption Access: You retain the right to exit after 5 years through the early redemption window
- Regular Interest Payments: The 2.50% annual interest continues to be paid semi-annually into your registered account
- NRI Tax Regulations: While your ownership rights remain intact, interest and capital gains will be taxed according to NRI tax laws
Documentation Requirements
To properly manage your SGB holdings after your status changes, you must complete these essential steps:
- KYC Status Update: File formal documentation with the KYC Registration Agency to update your residential status from resident to NRI
- Bank Notifications: Submit official status change applications to all banks where you hold SGB investments
- Account Linkage: Connect your SGB holdings to your NRO/NRE accounts to ensure proper fund routing
- Tax Documentation: Maintain comprehensive records of all transactions, interest payments, and redemptions for compliance with NRI tax regulations
Impact on Existing SGB Holdings
Your SGBs remain fully valid and protected after your status changes:
- Tenure Protection: You continue to benefit from the standard eight-year investment period
- Early Exit Option: The five-year early redemption window remains available on scheduled interest payment dates
- Investment Protection: The regulatory framework safeguards your existing investments despite the prohibition on new purchases
- Redemption Process: At maturity, your registered bank account will receive the full redemption amount based on the prevailing gold prices
- Secondary Market Options: You retain the ability to sell your holdings on the secondary market through a recognized stock exchange
Alternative Gold Investment Options
NRIs cannot invest in Sovereign Gold Bonds, but they have several ways to invest in gold. These options combine gold ownership benefits with modern investment convenience.
1. Gold ETFs and Mutual Funds
- Gold ETF Structure: Exchange Traded Funds that track gold prices with each unit representing one gram of gold (99.5% purity)
- Account Requirements: Requires a demat and trading account linked to either NRE account (for full repatriation) or NRO account
- Market Presence: Currently, 17 gold ETFs manage assets worth Rs.40,000 crore in India
2. Digital Gold Investments
- Minimum Investment: Start with as little as Rs.1, allowing gradual portfolio building
- Storage Security: Physical gold stored in insured, high-security vaults by custodians like Brink’s or G4S
- Purity Standard: 24-karat gold (99.99% pure), the highest standard available
- Platform Options: Three authorized issuers - MMTC-PAMP, SafeGold, and Digital Gold India 3. Physical Gold Purchase Options
3. Physical Gold Purchase Options
- Storage Security Solutions:
Bank Lockers: Annual costs range from Rs.1,500-15,000 depending on size and location, with NRI accounts often eligible for preferential rates.
Home Safes: Quality safes cost Rs.15,000-50,000 based on security rating, with additional insurance recommended.
- Insurance Considerations:
Specialized Coverage: Jewelry insurance costs approximately 1-2% of total value annually.
Home Insurance Integration: Standard policies cap jewelry coverage at Rs.1 lakh unless specific riders are added.
Conclusion
Understanding the regulations surrounding Sovereign Gold Bonds is essential for NRIs interested in gold investments. While current FEMA guidelines prevent non-residents from making new SGB investments, several attractive alternatives exist to build a diversified gold portfolio.
Gold ETFs and digital gold platforms offer modern, convenient options that align with NRI investment rules while providing benefits similar to SGBs—secure storage and straightforward selling processes that comply with FEMA regulations. If you’ve already invested in SGBs before becoming an NRI, your investments remain secure under existing regulations. You can retain these bonds until their full maturity or exercise early redemption options after five years, though you cannot purchase new bonds after your status change.
Your investment rights remain protected as long as you maintain proper documentation and follow applicable NRI tax regulations. When choosing between alternative gold investment options like ETFs, digital gold, or physical gold, consider factors specific to your financial situation. Storage costs, liquidity requirements, and tax implications should all influence your selection of the most appropriate gold investment vehicle for your portfolio.
Frequently Asked Questions: Sovereign Gold Bonds
1. Are non-resident indian (NRIs) eligible to invest in sovereign gold bonds?
No, currently, NRIs cannot make new investments in Sovereign Gold Bonds as per the Foreign Exchange Management Act (FEMA) regulations. These restrictions align with India’s strategy to manage domestic gold demand and control foreign exchange reserves.
2. What happens to existing sovereign gold bonds investments if an investor's status changes from resident to NRI?
If a resident investor becomes an NRI, they can continue to hold their existing Sovereign Gold Bonds until maturity or opt for early redemption after five years. However, they cannot make new SGB investments after their status change. All existing investments remain protected under the regulatory framework, and interest payments continue as scheduled, though they will be subject to NRI tax regulations.
3. Can NRIs inherit or be nominated for sovereign gold bonds?
Yes, NRIs can be nominees for SGBs. If an NRI becomes a nominee, they must hold the bonds until maturity, follow standard exit procedures, and accept non-repatriation of interest and maturity amounts. The nomination process falls under the Government Securities Act, 2006, and for bonds in demat form, the demat account nominee automatically becomes the SGB nominee.
4. What are the key compliance requirements for NRIs holding sovereign gold bonds?
NRI holders of SGBs must adhere to NRI tax regulations for income from these investments, maintain proper documentation for tax compliance, and ensure their holdings align with current FEMA guidelines.
5. What are some alternative gold investment options available to NRIs?
NRIs can invest in Gold ETFs, gold mutual funds, digital gold, and physical gold (jewelry, coins, and bars) as alternatives to Sovereign Gold Bonds.
Related Blogs
[Curated for NRIs] Top 5 Investment Options in India
February 1, 2024
4 Investments That NRIs Should Avoid
April 1, 2024
5 mins
