Sovereign Gold Bonds (SGBs) have been a popular and secure choice for Indian investors, but when it comes to NRIs, there are specific regulations surrounding NRI Sovereign Gold Bond investment. Launched in 2015, these bonds offer a secure alternative to physical gold, combining the benefits of capital appreciation and interest income. However, Non-Resident Indians (NRIs) face specific restrictions regarding SGB investments, especially following recent regulatory changes. To diversify their portfolios, NRIs should also consider other gold investment options available in India. This blog discusses the regulations surrounding NRI investments in Sovereign Gold Bonds and highlights alternative gold investment opportunities suitable for NRIs.
In Budget 2025, the government announced the discontinuation of the Sovereign Gold Bond (SGB) scheme due to rising domestic gold prices. NRIs will need to explore alternative gold investment avenues in light of these regulatory changes.
What Are Sovereign Gold Bonds?
Sovereign Gold Bonds are government securities denominated in grams of gold. Issued by the Reserve Bank of India (RBI) on behalf of the Government of India, these bonds offer investors a secure way to invest in gold without the need for physical storage. They come with a fixed annual interest rate of 2.5%, payable semi-annually, and a tenure of 8 years.
Key Benefits:
- Tax advantages: Capital gains from SGBs are exempt from tax if held until maturity.
- No physical storage required: The bonds are held in electronic form, making them convenient for NRIs.
- Government-backed: A safe investment backed by the Indian government.
Current Eligibility Criteria for Sovereign Gold Bonds
SGBs are available to:
- Resident Indian individuals
- Hindu Undivided Families (HUFs)
- Trusts
- Universities
- Charitable institutions
Minimum Investment:
- 1 gram of gold
- Maximum Limit:
- 4 kilograms for individuals and HUFs
- 20 kilograms for trusts and institutions
However, only resident Indians can invest in SGBs. So, what about NRIs?
Can NRIs Invest in Sovereign Gold Bonds?
According to the Foreign Exchange Management Act (FEMA), NRIs cannot directly invest in Sovereign Gold Bonds. While NRIs cannot buy new bonds, they can retain bonds bought when they were residents of India. If an NRI purchased SGBs as a resident, they can keep the bonds until maturity or opt for early redemption.
What Happens When an NRI Holds Sovereign Gold Bonds?
- Retention of Existing Bonds:
If an NRI held SGBs while being a resident Indian, they can continue to hold the bonds, receiving interest payments and capital gains. They must comply with NRI tax laws regarding these holdings. - Redemption and Tax Implications:
When redeeming SGBs, NRIs need to adhere to NRI tax regulations, which include taxes on the interest earned and any capital gains upon redemption. - Inheritance and Nomination Rights:
NRIs can nominate a beneficiary for their SGBs. Upon their passing, the nominee can inherit the bonds and hold them until maturity, subject to the same guidelines as the original holder.
Alternative Investment Options for NRIs
While NRIs cannot directly invest in Sovereign Gold Bonds, there are several alternative gold investment options that offer similar benefits:
Gold ETFs (Exchange-Traded Funds)
- How It Works: Gold ETFs are listed on Indian stock exchanges and allow NRIs to invest in gold by purchasing units of the fund.
- Benefits: Offers liquidity, easy trading, and digital transactions. NRIs can invest through NRE/NRO accounts.
Gold Mutual Funds
- How It Works: These funds invest in gold and gold-related assets.
- Benefits: Provides portfolio diversification. NRIs can invest through Indian fund houses or brokers.
Digital Gold
- How It Works: Allows investment in gold in small denominations starting at Rs. 1.
- Benefits: Flexible, stored electronically, and eliminates storage issues.
Physical Gold
- How It Works: NRIs can buy physical gold in the form of jewelry, coins, or bars.
- Benefits: Direct ownership of gold. However, storage and insurance challenges remain.
Conclusion
Although NRIs can no longer make fresh purchases under the NRI Sovereign Gold Bond investment scheme, they can retain existing bonds until maturity while complying with applicable tax and regulatory guidelines. To stay diversified and optimize returns, NRIs should consider alternatives like Gold ETFs, mutual funds, digital gold, and physical gold.
For more expert guidance on navigating your gold investment options, property management, or tax compliance, NRI Edge is here to help you make informed decisions and manage your assets effectively.
Frequently Asked Questions (FAQs)
Q1. Are Non-Resident Indians (NRIs) eligible to invest in Sovereign Gold Bonds?
No, NRIs cannot make new investments in Sovereign Gold Bonds as per FEMA regulations.
Q2. What happens to existing Sovereign Gold Bond investments if an investor’s status changes from resident to NRI?
NRIs can continue to hold their SGBs until maturity or opt for early redemption, but cannot purchase new bonds.
Q3. What are some alternative gold investment options available to NRIs?
NRIs can invest in Gold ETFs, Gold Mutual Funds, Digital Gold, and Physical Gold as alternatives to Sovereign Gold Bonds.
Q4. Can NRIs inherit or be nominated for Sovereign Gold Bonds?
Yes, NRIs can be nominees for SGBs. They must follow the standard procedures for retention and redemption of the bonds.
Q5. What are the key compliance requirements for NRIs holding Sovereign Gold Bonds?
NRIs must adhere to NRI tax regulations for SGBs, maintain documentation for tax compliance, and ensure their holdings align with FEMA guidelines.
