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Tips to Transfer Physical Gold Bonds to Demat Form

Tips to Transfer Physical Gold Bonds to Demat Form

Sovereign Gold Bonds are a form of Government securities issued by the Reserve Bank of India on behalf of the Indian Government. These are denominated by weight for gold in grams. Gold bonds can act as an alternative to holding gold in physical form while still providing investors with all the benefits of owning gold. Investors are required to pay in cash for purchasing or investing in these Gold Bonds, and the Bonds are redeemable on maturity in cash only.

Dematerialisation of Gold Bonds

In a move towards dematerialisation of various financial instruments, the Reserve Bank of India has permitted conversion of physical gold bonds into dematerialised form. In March 2017, the RBI processed request for conversion of Sovereign Gold Bonds up to a tune of Rs. 4145 cores.

Bondholders who wish to hold Sovereign Gold Bonds in dematerialised format can contact their depository participants for details of conversion to Demat form. Physical bondholders will be required to fill an application form and submit relevant KYC documents and proof of ownership of the Sovereign Gold Bond. The Bond Holders need to ensure all details filled in the applications form are correct, and their Demat accounts are not in a dormant or inactive state. The depository participants will process and submit your application the CDSL, who will verify the application and supporting documents submitted. In case everything is in order, the bondholder’s applications will be processed, and the Demat account of the Gold Bondholder will be credited with units purchased by them.

Advantages of Gold Bonds in Demat Account over Physical Gold

  • Unlike in physical Gold, investors are protected towards the quantity of gold purchased or invested. There is the scope of manipulation of quantity in physical gold whereas the same is not possible in Gold bonds.
  • The Risk of theft is eliminated in Gold Bonds as with the help of KYC compliance, only the actual owner of the Gold bond can redeem them and enjoy its benefits. Also, Gold Bond in Demat form is highly secure and cannot be stolen from the holders easily. Whereas physical gold can be easily liquidated, even when it has been
  • Physical gold needs to be held and stored in a safe and secure location such as a safe, bank lockers, safety deposit box etc. which involves cost. Whereas, Gold Bonds can be converted into dematerialised form providing ease and convenience in storage.

What is a Demat Account?

A dematerialised account, which is also referred to as a Demat account is a type of account utilised for holding, trading and transaction of securities, shares and other financial instruments in the electronic form. When a person trades in securities, stocks, share and other financial instruments online, these securities, stocks, share and other financial instruments are bought and held in an electronic account which is known as the Demat Account. Hence, a Demat account facilitates ease in trading for users and investors. A Demat account can be used for holding a wide array of financial instruments and investment securities such as stocks and shares, bonds, government securities, mutual funds etc., in a single account. Due to the increase of popularity of dematerialisation of shares, stocks and financial instruments, many depository participants and commercial banks offer investors to open online Demat Account.

Features of Sovereign Gold Bonds

  1. Investment Limit

These Gold Bonds are issued in the denomination of weight of gold, i.e. in grams of gold. The minimum investment required is one gram of gold with a maximum limit of 500 grams per person per financial year.

  1. Tax Implications of Investing in Gold Bonds

Interest income earned from Gold Bonds are taxable as per the relevant provisions of the Income Tax Act. However, any capital gains earned from investment in the Sovereign Gold bonds at the time of redemption is tax exempt. However, in case the Gold Bonds are transferred to another person, in such as case long-term capital gains tax is applicable after the implication of the indexation benefits.

  1. Redemption Benefits

The holders of the Sovereign Gold Bonds are entitled to receive an amount which is equivalent to the prevailing market rate of gold at the time of redemption or maturity. The redemption price will be calculated on the basis of a simple average of previous week’s closing price of Gold published by the IBJA.

  1. Rate of Interest

The inventor of the Sovereign Gold Bond is entitled to receive interest of 2.75% per annum. The interest rate will be calculated based on the initial investment and not the prevailing price of gold. This interest month is directly deposited in the bank account of the holder of the gold bond twice a year, i.e. every 6 months. The last interest payment will be made on the date of maturity along with repayment of the price equivalent to the prevailing market price of gold.

  1. Time Period for Encashing Gold Bonds?

Generally, the Sovereign Gold Bond has a tenor of eight years. These instruments allow early redemptions or encashment from the fifth year of the date of issue of the instrument. These Gold Bonds can be traded over the exchanges, and if held in dematerialised form, they can also be transferred to the Demat account of other eligible investors.

  1. Transferability of Gold Bonds

The holder of Sovereign Gold Bonds can transfer the ownership of these Gold Bonds in the form of gifts or payment to their friends, family, relatives, business associates or any other individual who are eligible to hold Sovereign Gold Bonds

  1. Who are Eligible to Hold Sovereign Gold Bonds?

The Sovereign Gold Bonds can be held only by individuals, trust, HUFs, charitable institutions, universities etc. These individuals/institutions need to cover the definitions of Indian national and Indian Resident as per the Foreign Exchange Management Act 1999.


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