Definitive cutoff date to be eligible for interest on Government Securities

[priyankp]

I have some Sovereign Gold Bonds, I have been holding one from its issue date. I did get one tranche of interest payment in my bank account T + 6 months + 1 day after issue date of bond.

However, I have been holding these bonds since issuance so I was obviously eligible to receive the interest but what happens if I buy a bond one day before interest is due? Do I still get the entire interest? Do I get prorated interest or none at all? Is there a cutoff date before which I should buy the bond to be eligible for full interest?

I would like to know the exact details as I am planning to develop a price calculation tool based on it.

[ShubhS9]

You are eligible to receive full interest when you purchase bonds from secondary market. But when you purchase bonds from secondary market, the price quoted is dirty price, means it includes interest accrued for the holding period.

This post will help you understand it better:

What are sovereign gold bonds?

In simple words, government sovereign gold bond scheme is where instead of having  physical gold sitting idle in your house, you can invest in gold bonds.  These gold bonds are in demat form, and unlike physical gold gives you an interest of 2.75% annually additional to whatever appreciation happens on the underlying gold value. This interest payment is half yearly on 30th May and 30th Nov.  What happens if gold value drops?  If it drops, your value of gold bond also drops. It is the same way…

[priyankp]

I am okay with dirty prices. I can always not buy if price is above my assessment of good price. But for me to do a proper assessment, I want to know the date on or before which I should buy a bond for the interest to be accrued to my account. This is for a tool that I am developing which will tell the fair price of a bond based on some calculations. So even if the difference is small, I want the tool to give accurate information to the user.

As of now, my only way is to try and buy some bonds on

T+6 monhts - 0 day
T+6 monhts - 1 day
T+6 monhts - 2 days
...
T+6 monhts - n days 

and then keep waiting for a interest credit entry to appear in my bank statement.

I am sure, there is a definitive source of information for this but I don’t know where to look. I guess since SGBs are Government Securites, the same rules will apply to it as GS. So any definitive info on what happens in GS is also fine.

[Prayag]

I found a thread that might be helpful -

@Bhuvan

If a bond is issued on 1st Jan, interest payments always happen on 1st July and 1st Jan. Since there are no ex-coupon dates, you need to have the bond in your demat by 30th June or 31st December.

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Settlement cycle for G-Secs is T+2 days (Bhuvan clarified about that in this thread - Question about G-Secs showing up in Holdings tab) -

@Bhuvan

@Prayag

As an experiment, I bought a single unit of multiple G-Secs via Kite (specifically 737GS2023-GS and 75GS2034-GS), but I noticed that those weren’t credited into my Holdings (trade happened on Monday). I assumed that settlement was going to happen in T+1 days

T+2 is the settlement cycle.

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For SGBs as well, there is a similar T+2 days settlement cycle (Found it mentioned in this thread - SGB purchase in zerodha)

@ShubhS9

Takes T+2 working days for them to get credited to your Demat account, you bought it on 21st, will be credited to your Demat account on Tuesday end of the day.

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But I have also found a thread that talks about SGB taking T+3 days when NSDL to CDSL transfer is involved -

@VenuMadhav

@AJ007

Are you going to transfer it to my CDSL or keep it in a ‘client pool’ account.

There are a few backend processes that we’ll have to do as a DP, requires us to co-ordinate with the 2 depositories - NSDL & CDSL. Hence, the units will be credited to your own demat account on T+3 as against on T+2. We don’t hold any client stocks in our pool account, they get transferred to the respective client beneficiary.

But for the above thread, as it is over a year old, processes might have changed (especially because of changes that are mentioned in this thread - Inter Depository Transfers of G-Sec, T-Bills, and Gold Bonds are now allowed)

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Also, Inter depository transfer (NSDL to CDSL) of G-Secs and SGBs is allowed only in multiples of 100 (Found this mentioned in this support page). So there be a risk of delay in the normal settlement cycle if quantities lower than 100 or not in multiples of 100 are involved.

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Other than this, you might have to take into account an edge case scenario of the purchased SGBs/G-Secs being short delivered and extra buffer time required to rectify the issue if a problem like that arises (Very unlikely to happen but as you are creating a tool, best to mention/consider about that as well)

[priyankp]

Thanks a lot @Prayag. You have very nicely composed information from various threads to give a complete picture.

[Prayag]

I found a TXT file on the NSE website which contains the Record Date and Ex-Date for various Corporate Actions happening on the exchange (including for Interest payment for G-Secs).

[priyankp]

Hey, that’s interesting, what part of NSE website did you find it. I can access the link but how to reach it via NSE’s portal? Is it a regular report?

[Prayag]

I found it by mistake while I was trying to search for something else (this page is indexed by the search engines). I too couldn’t find this linked from any page on the old NSE website. But on the new NSE website, there is a page that lists Record and Ex Dates for several corporate actions (including interest payment for G-Secs) in a much more readable format compared to that report

[sub_sunil]

I read up the entire thread on your orginal question, but I could not locate the answer to the exact orginal question you had asked actually!
Did you get your answer? I believe the exact question can be summarised as below.
“if one buys SGB just 1 or 2 days before the interest payment date, do they get the entire interst for 6 months or just 1 or 2 days interest on pro rata basis?”

[sub_sunil]

I read up the entire thread on your orginal question, but I could not locate the answer to the exact orginal question you had asked actually!
Did you get your answer? I believe the exact question can be summarised as below.
“if one buys SGB just 1 or 2 days before the interest payment date, do they get the entire interst for 6 months or just 1 or 2 days interest on pro rata basis?”

Did you get an answer to above question?

[Akash_Shah]

You will get entire interest for 6 months, provided SGB are in your demat before record date

[neha1101]

Does it make material difference in amount even if you put T + 5 days to be very conservative.

[priyankp]

Yes I did. The trade date needs to be less than or equal to Coupon Date - 3 Working Days
For example if Coupon Date is Thursday then you should place (execute) your order on or before Monday.

But as mentioned in above conversations, there may be delays due to various reasons. So you might want to buy earlier than that.

Also gold price fluctuates, so you’ll find that it is better to target a good buy price 10-15 days in advance than buying at whatever price on the last permissible day.

[priyankp]

Knowing the exact date allows you to wait for a better price. Also, in general it is good to know the the exact rules of any system even if you don’t intend to always play on the borderline.

[priyankp]

Yes!