The Sovereign Gold Bond is restricted to only Indian residents, including individuals, HUFs, trusts, universities, charitable institutions; and will be issued by Reserve Bank of India (RBI) on behalf of the government.
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The Sovereign Gold Bond Scheme (SGBS) may address pure investment demand for the yellow metal and is easy to implement relative to the gold monetisation scheme, the India Ratings report said.
The government will keep allowing the sales of GBS for a limited period through banks and post offices. The borrowing through issuance of the bond will form part of market borrowing programme of government. The bonds would be issued by the RBI.
Applications for the bond will be accepted from 5 November 2015 to 20 November 2015. Investors can buy a minimum of 2 units or 2 grams and a maximum at 500 grams per fiscal year. In case of joint holding, the investment limit will be applied to the first applicant only.
The rate of interest will be 2.75 percent per annum payable semi-annually on the initial value of investment. Price of bond will be fixed in Indian Rupees on the basis of the previous week’s (Monday-Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association (IBJA).
A few of the pros of the sovereign gold bond scheme include, that a successful launch of this product may ensure that physical gold is used mostly for manufacturing jewellery and sovereign gold bond for investments. Rather than owning gold in physical form and keeping it idle without earning anything on it, GBS gives an opportunity to own gold and yet earn interest on it. The investor would be given an option to roll over their holdings for an additional period. An option by banker and post office to direct such amount to savings account would help accrue more. The investment can be held in paper form a certificate or in the demat form too. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time. KYC documents such as Voter ID, aadhaar card or PAN or TAN or passport will be required. However, in case gold prices fall, losses from a systematic investment plan in gold exchange traded funds or gold mutual funds will be lower than for lump sum investments in sovereign gold bonds. TDS (tax deducted on source) is not applicable on the interest component, but interest earned on gold bonds will be added to the income and taxed.
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