GUIDES
GuidesPersonal LoansA Guide: Loans Against SGBs (Sovereign Gold Bonds): Meaning, Benefits, How to Apply
LAST EDITED BY RUPALI AMIN ON AUGUST 21, 2024.
At some point in life, people find themselves in a financial emergency — where liquid cash is necessary, but no immediate funds are available. In this predicament, you may consider liquidating some investments to obtain money for your expenses. What if there was a better option, where you could pledge the investment instead and obtain a loan against it? One such option is a loan against SGBs or Sovereign Gold Bonds.
To avail of a loan against SGBs, the main prerequisite is that you should have invested in SGBs already. Sovereign Gold Bonds are debt instruments that the Indian government backs. These bonds are denominated in grams of gold and are a safer substitute for physical gold investments.
A loan against SGBs is a type of loan against bonds where you offer your Sovereign Gold Bonds as a security for the money borrowed. The bonds pledged are collaterals for the loan, thus reducing the credit risk for the lender. As a result, the rates of interest for these loans are generally lower than the rates for unsecured loans.
When you apply for a loan against SGBs, the lender checks your eligibility and verifies if the bonds you’re pledging qualify for the facility. Additionally, the lender also obtains a lien on the bonds you offer as security. This gives them the right to liquidate your investments if you default on the loan.
As long as you repay the EMIs as per schedule, however, you will continue to earn interest on your Sovereign Gold Bonds. If you successfully pay off your loan completely, the lender’s lien on the bonds will be removed.
Choosing a loan against SGBs instead of redeeming your investment outright can be beneficial in other ways too. Check out the top benefits of obtaining this type of credit facility.
You continue to enjoy the benefits of capital appreciation during the repayment tenure, provided you repay the loan EMIs as and when they are due. What’s more, you will also continue to earn interest on your Sovereign Gold Bonds during the repayment period.
Loans against bonds like SGBs are generally processed in record time. This ensures that funds are disbursed to you easily and fairly quickly. As a result, you can pay your emergency bills without any undue delay.
Since loans against SGBs are secured loans, the risk to the lender is considerably reduced. Consequently, the interest rates on these loans are also lower than the rates on personal loans or credit cards.
If you have not invested in Sovereign Gold Bonds, you cannot avail of loans against SGBs. However, there are other types of secured loans you can consider as alternatives. Some examples include gold loans, loans against fixed deposits, loans against life insurance policies and even loans against securities like shares or mutual funds.
The steps outlined below will give you a broad idea of how you can apply for this type of loan against bonds like SGBs.
To conclude, loans against bonds like SGBs are really useful if you have invested in eligible securities and find yourself in need of a loan. Not only do you get the advantage of lower interest rates, but your investments also remain intact as long as you repay the loan as scheduled.
If you do not have any eligible Sovereign Gold Bonds to offer as collateral, you could check if you are eligible for instant pre-approved loans instead. Fi Money provides instant loans that arrive directly in your savings account. These are pre-approved personal loans made available to select users with good credit scores. On Fi, this process is 100% paperless, and the loans are provided at competitive interest rates — where each user remains in control with complete visibility of all details. Our licensed partner bank assigns an eligible loan amount to each user (up to ₹5 lakh).
A loan against SGBs allows you to use your Sovereign Gold Bonds as collateral for the loan. It works by using the SGBs as security for the lender in exchange for the funds disbursed.
No, not all financial institutions offer loans against bonds or SGBs. You need to check the lending policy of your preferred bank or financial institution to get more clarity.
The loan-to-value ratio for loans against SGBs compares the loan with the value of the collateral. It is calculated by dividing the loan amount by the value of the SGBs pledged.
The most common eligibility criteria for loans against SGBs is that you should own valid and active Sovereign Gold Bonds. There may be other specific criteria set by each lender.
The advantages of using SGBs as collateral for a loan include retention of investments and competitive interest rates. The main risk is the possibility of losing your SGBs if you don’t repay the loan.
