Sovereign Gold Bond Scheme - An Overview

Sovereign Gold Bond Scheme - An Overview

Introduction-
The Government of India (GOI) has decided to reduce the physical demand of the gold and other precious metal. For this purpose, Prime Minister of India Narendra Modi launched a scheme named as the Sovereign Gold Bond Scheme in 2015. Recently Government has decided to launch Sovereign Gold Bonds 2017-18 – Series-III. The bonds would be issued by the Reserve Bank of India on the behalf of GOI. Under this scheme, the investors can get the interest rate of 2.75% annually by purchasing the paper bonds.

Sovereign Gold Bond (SGB) –
The Sovereign Gold Bond is the security of the government which is denominated in grams of the Gold. The bonds can be referred as the substitute of the physical gold. While purchasing the bond, the investors must pay the cost of the gold in cash. On maturity the bonds would be redeemed in the cash.

Objective of the Sovereign Gold Bond (SGB) Scheme –

• To reduce the import bill of India by reducing the physical demand of gold.
• To use the fund deployed in the bond for the development of the country.

Eligibility Criteria for Buying the Bonds – 

• Only the Indian Nationals including Trusts, Universities, HUFs, charitable institutions and individual can purchase the bond.

Features of the Sovereign Gold Bond Scheme Series III -

• The bonds would be denominated in the multiple of grams of the gold with 1gram basic unit.
• Tenor of the gold bond is 8 years with the exit option in the fifth year.
• Minimum amount of 1 gram gold is essential for the investment.
• The maximum amount would be 4 Kg for an individual, HUF and 20 Kg for the trusts for per fiscal year as per the direction of Government of India.
• The maximum limit of 4Kg would be applicable for the first applicant in case of a joint holding.
• The gold price and redemption price must be fixed in Indian currencies on the basis of the average of gold closing price of 999 purity that is determined by the India Bullion and Jewellers Association Limited in the last 3 working days of the week in which the subscription starts.
• A discount price of Rs. 50 per gram must be issued for the online subscribers and digital payment makers.
• Payment options like cash (up to Rs. 20,000), Demand drafts, cheque and electronic banking would be available.
• The bonds would be issued under the GS Act, 2006 of Government of India.
• The bonds must be sold through directly or indirectly the Stock Holding Corporation of India Limited (SHCIL), National Stock Exchange of India Limited, Banks and Bombay Stock Exchange.
• There would be a fixed interest rate of 2.50 percent per year for the investors payable semi-annually.
• The gold bonds can also be used as the collateral for the loans.
• The norms of “Know Your Customer” in case of buying gold physically would be the same for buying gold bond.
• The interest amount on these gold bonds is taxable according to the provision of the Income Tax Act, 1961.
• These bonds are eligible for the SLR purposes.
• The Sovereign Gold Bonds must be tradable on the Stock Exchanges within fortnight of issuance of the bond.
• The 1% commission amount must be deducted for the distribution of the bond.

Benefits of Sovereign Gold Bond –

• No quality check of the gold is needed while buying the Gold Bonds.
• The investors can get a certain amount of interest on the gold bonds.
• The gold bonds are highly liquid in nature.
• The investors need not to be concerned about the security and storage of the gold bonds.

Conclusion -
According to the Government, the scheme would unlock the 20,000 tonnes of gold which are lying idle in Indian households and temples and put into banking system.