SOVEREIGN GOLD BOND

The Government of India has launched the Sovereign Gold Bonds Scheme. As investors will get returns that are linked to gold price, the scheme is expected to offer the same benefits as physical gold. They can be used as collateral for loans and can be sold or traded on stock exchanges

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

BENEFITS

·         The Sovereign Gold Bonds will be available both in demat and paper form.

·         The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.

·         They will carry sovereign guarantee both on the capital invested and the interest.

·         Bonds can be used as collateral for loans.

·         Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

·         Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

·         Capital gain tax arising on redemption of SGB to an individual has been exempted. The indexation benefit will be provided to LTCG arising to any person on transfer of bonds. The department of revenue has said that they will consider indexation benefit if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption.

 

HOW CAN I BUY IT

Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold. Minimum investment in the bond shall be 1 gram. The bonds can be bought by Indian residents or entities and is capped at 500 grams.

WHERE CAN I BUY IT

Investors can apply for the bonds through scheduled commercial banks and designated post offices. NBFCs, National Saving Certificate (NSC) agents and others can act as agents. They would be authorized to collect the application form and submit in banks and post offices.
BSE and NSE are included as receiving offices, apart from the commercial banks, SHCIL, designated post offices 

WHO IS ISSUING THE BONDS

The Bonds are issued by the Reserve Bank of India on behalf of the Government of India. The bonds are distributed through banks and designated post offices. This should make subscribing to the bonds an easy affair. During redemption, "the price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption"

Know-Your-Customer (KYC) norms

Know-Your-Customer (KYC) norms will be the same as that for purchase of physical form of gold. Identification documents such as Aadhaar card/PAN or TAN /Passport / Voter ID card will be required. KYC will be done by the issuing banks/Post Offices/agents.

Minimum and Maximum limit for investment

The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be two grams with a maximum buying limit of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.

Rate of interest

The Bonds bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semiannually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

Redemption

On maturity, the redemption proceeds will be equivalent to the prevailing market value of grams of gold originally invested in Indian Rupees . The redemption price will be based on simple average of previous week’s (Monday-Friday) price of closing gold price for 999 purity published by the IBJA.

Source: http://finmin.nic.in/