Sovereign gold bond: Key things to consider when buying it from secondary market

SGBs are issued in tranches and generally open for a period of one week in a month. However, they are always available on the trading platform — which is the secondary market.

When buying from secondary markets, investors must be satisfied with whatever quantities and prices they are being offered, said Sanjiv Bajaj, Jt. Chairman & MD, Bajaj Capital Ltd while talking to CNBC-TV18.com.

This is because prices and quantities are dependent on the market conditions.

The maturity dates may also vary with the lots which are available for sale in secondary market.

“At times, investors may get some good deal on pricing whenever there is some distress sell by some of the old SGB holders. If individuals hold the investment till maturity, that is good. But if they want liquidity in between, they must be prepared to get a discounted price for their holdings. On top of that, investors may also have to wait for sometime before a buyer turns up. Most importantly, they would need DEMAT account for transactions via any of the options,” Bajaj said.

On holding SGB until maturity, investors can avail of tax benefits. If they sell the holding before maturity, then the taxation will apply as per the period of the holding.

For eg: If Mr X has held bonds for less than three years, he should be prepared to pay tax at the applicable rates on the gains. But, if he has sold bonds after holding them for at least three years, then he shall be taxed at a lower rate of 20 percent of the gain and that too after applying the indexation benefit.

On the other hand, if he waits till maturity then whatever gain he makes will be completely exempt from tax, Bajaj told CNBC-TV18.com.