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How to buy sovereign gold bonds from the exchanges

Traded volumes are low and the price at which they trade are typically at a discount to the prevailing price of gold

December 20, 2019 / 09:00 AM IST

Gold has been the best performer among all asset classes for the year 2019, and there is an expectation that the yellow metal’s prices would continue their journey upward. No wonder then that investors are getting interested in gold.

One way to invest in gold is to buy sovereign gold bonds (SGB). However, these bonds are not issued all through the year. If you missed applying for the bonds in the public issue, you can also consider buying these from the secondary market. Here is how to go about it.

Tracking the bonds

You need trading and demat accounts to buy these bonds from the secondary market. Start with tracking the SGBs. The prices of these bonds can be tracked on the NSE and on the BSE.

These bonds are expected to track the price of one gram gold. However, liquidity is very low. Traded volumes are low and the price at which they trade are typically at a discount to the prevailing price of gold. For example, the Mumbai spot 24K gold price for a gram was Rs 3854, whereas the SGBs traded at around Rs 3600 per bond on December 13, 2019.


These bonds have been trading at a discount to spot prices all these years and you too will get it at a discount. But there are two implications of such a purchase. First, if you are keen to buy large quantities in a single trade, the price will go up substantially as there aren’t many sell orders. Low volumes mean the maximum quantity traded is around 100 to 200 bonds in a couple of series, while many are not traded at all. So, you need to go slow while placing orders and accumulating these bonds.

Second, if you cannot hold the bond till the maturity, you may have to sell it at a discount if there is not much trading interest in the SGB at the time of your sale. Be prepared for such an outcome. If not, hold on to these bonds till maturity.

The bonds come with a tenure of eight years. However, they can be encashed or redeemed after five years on interest payment dates.

There are many series of SGBs available. A few of them are traded. They mature from 2023 to 2027. Check if you can get a bond that is maturing over your desired holding period. You can ascertain the date of maturity of the bond from the exchange.

If you are keen to buy a bond at a lower price, you may use the good till cancelled (GTC) order. The GTC order facility is provided by many leading stock brokers, which enables you to buy a security at a price you desire. The orders otherwise placed on the stock exchange are good for the day only. If the offer price quoted by the seller doesn’t match with your desired bid price within a day, your order stands cancelled. GTC orders save you from the trouble of placing the orders every day.
Nikhil Walavalkar
TAGS: #Gold #SGB
first published: Dec 20, 2019 09:00 am

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