The
Sovereign Gold Bond Scheme was launched by Ministry of Finance in November 2015
to curb the import of Gold from other countries thus controlling Current
Account Deficit. The Sovereign Gold Bond Scheme encourages people to buy paper
bond as an alternative to investment in physical Gold. The Sovereign Gold
Bond are issued by RBI in denomination of one grams.
Read summary and important points related to Sovereign Gold Bond Scheme.
Sovereign
Gold Bond Scheme
1) Sales Channels:
i. banks,
ii. Stock
Holding Corporation of India Limited (SHCIL),
iii. designated
post offices and
iv. recognised stock
exchanges viz., National Stock Exchange of India Limited and Bombay Stock
Exchange.
2) Issuance :
Issued
by Reserve Bank India on behalf of the Government of India.
3) Eligibility:
The Bonds
will be restricted for sale to resident Indian entities including:
- Individuals,
- Hindu Undivided Families (HUF),
- Trusts, Universities and Charitable Institutions.
4) Denomination:
In
multiples of gram(s) of gold with a basic unit of 1 gram.
5) Tenor:
The tenor
of the Bond will be for a period of 8 years with exit
option from 5th year to be exercised on the interest
payment dates.
6) Minimum
permissible investment: will be 1 gram of gold.
7) Maximum
limit of investment per fiscal year:
- Individuals : 4kg,
- Hindu Undivided Family (HUF) : 4kg,
- Trusts : 20kg
Ceiling
on investment doesn't include the holdings as collateral by Banks and
Financial institutions.
8) Issue
price :
Price of
Bond will be fixed in Indian Rupees on the basis of simple average of closing
price of gold of 999 purity published by the India Bullion and
Jewellers Association Limited for the week (Monday to
Friday) preceding the subscription period.
The issue
price of the Gold Bonds will be 50 per gram less than the nominal value.
9) Payment
option:
Payment
for the Bonds will be through cash payment (upto a maximum of Rs. 20,000) or
demand draft or cheque or electronic banking.
10) Issuance
form:
The Gold
Bonds will be issued as Government of India Stocks under GS
Act, 2006. The investors will be issued a Holding Certificate for the same. The
Bonds are eligible for conversion into demat form.
11) Redemption
price:
The
redemption price will be in Indian Rupees based on previous week’s
(Monday-Friday) simple average of closing price of gold of 999 purity published
by IBJA.
12) Interest
rate:
The
investors will be compensated at a fixed rate of 2.50% per
annum payable semi-annually on the nominal value.
13) Collateral:
Bonds can
be used as collateral for loans. The loan-to-value (LTV) ratio is to be set
equal to ordinary gold loan mandated by the Reserve Bank from time to time.
14) 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. The indexation benefits will be provided to
long term capital gains arising to any person on transfer of bond
15) Tradability:
Bonds
will be tradable on stock exchanges within a fortnight of the
issuance on a date as notified by the RBI.
16) SLR
eligibility:
The Bonds
will be eligible for Statutory Liquidity Ratio purposes.
17) Commission:
Commission
for distribution of the bond shall be paid at the rate of 1% of the total
subscription received by the receiving offices and receiving
offices shall share at least 50% of the commission so received with the agents
or sub agents for the business procured through them.
Launched
by : Ministry
of Finance on 5th Nov, 2015
Advantages
of Sovereign Gold Bond Scheme:
1) Helps
to reduce the import of gold from other countries to meet the domestic demand,
2)
Control current account deficit by reducing demand for physical gold,
3) Gold
available in demat or physical paper format with fixed interest rate equivalent
to ongoing market rate,
4) Acts
as alternate investment for physical gold,
5) It
frees investor from the risks and cost of storage,
6) Free
from purity issues and making charges.
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