Sovereign Gold Bonds for NRIs: Can they invest, hold existing SGBs and buy them from secondary market?
Non-Resident Indians (NRIs) have several options to invest in gold in India, including physical gold, gold mutual funds and Gold ETFs. However, NRIs cannot make fresh investments in Sovereign Gold Bonds (SGBs) under the existing rules.
SGBs are government securities denominated in grams of gold and are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are designed as an alternative to holding physical gold.
Here is what NRIs need to know about SGB investments and the other gold investment options available to them.
Can NRIs invest in Sovereign Gold Bonds?
No. SGBs are available only to persons resident in India, as defined under the Foreign Exchange Management Act, 1999.
Eligible investors include individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions.
The RBI also requires every SGB application to carry the investor’s Permanent Account Number (PAN), with the PAN of the first or sole applicant being mandatory.
What happens to SGBs if an investor becomes an NRI?
An individual who purchased SGBs while being a resident in India can continue to hold those bonds even after changing their residential status from resident to non-resident.
The investment can be held until either early redemption or maturity.
The SGB scheme has a tenure of eight years. If the investor holds the bond until maturity, it is automatically redeemed and the maturity proceeds are credited to the registered bank account.
According to ICICI Direct, redemption proceeds and interest from such an investment are not repatriated to India.
Can NRIs invest in other forms of gold?
Yes. NRIs, Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) can invest in gold in India through various avenues.
These include physical gold, e-gold, gold mutual funds and Gold ETFs.
Physical gold remains one option for investors who prefer to hold the metal directly. Gold mutual funds, meanwhile, invest primarily in gold, while Gold ETFs are exchange-traded funds whose underlying asset is gold.
NRIs looking to invest through e-gold, gold mutual funds or Gold ETFs need a demat account, according to the information provided.
What is the investment limit for SGBs?
For eligible SGB investors, the maximum subscription limit is 4 kg per individual in a financial year. The limit is also 4 kg for HUFs, while trusts and similar entities can subscribe to up to 20 kg in a financial year.
The financial year for this purpose runs from April to March.
However, these limits apply to eligible investors, and do not make NRIs eligible for fresh SGB subscriptions.
Are new Sovereign Gold Bonds available now?
The SGB scheme is no longer open for new subscriptions.
Existing SGBs, however, remain valid and will continue to earn interest and mature according to their original terms.
Investors can also buy existing SGBs through the secondary market.
What exactly is a Sovereign Gold Bond?
An SGB is a government security denominated in grams of gold. Instead of purchasing physical gold, an investor holds a security whose value is linked to gold.
The investor pays the issue price in cash when subscribing, while the bond is redeemed in cash when it matures.
The Reserve Bank of India issues SGBs on behalf of the Government of India.
What are the risks of SGBs?
Like other investments linked to gold prices, SGBs are exposed to movements in the price of the metal.
If gold prices fall, an investor can suffer a loss in the market value of the investment. However, the number of gold units represented by the bond does not change.
For an NRI who already owns SGBs from their time as a resident, the change in residential status does not by itself require the investment to be sold. The bonds can continue to be held until early redemption or maturity.
