sovereign-gold-bond-scheme-gsm-3-indian-economy

Sovereign Gold bond:

  • SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
  • The Bond is issued by Reserve Bank on behalf of Government of India.
  • 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. Investors are assured of the market value of gold at the time of maturity and periodical interest.
  •  

Salient Features:

  1. Minimum Denomination: The minimum permissible investment will be 1 gram of gold.
  2. Maximum Denomination: The maximum limit of subscribed shall be 4 KG for the individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March).
  3. Issuing Institutions: Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
  4. Rate of Interest: The investors will be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.
  5. Collateral: Bonds can be used as collateral for loans
  6. Tax Treatment: The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted.
  7. Tradability on Stock Exchange: Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date, as notified by the RBI.
  8. Tenure: The tenor of the Bond will be for a period of 8 years with exit option in 5th, 6th year and 7th year.
  • Advantages:
  • It will help India cut unnecessary Imports and thereby reduce Current Account Deficit and maintain the strength of Indian Rupee.
  • The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated.
  • 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.
  • Risks involved: There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.