• Sovereign Gold Bond Scheme was launched by Government in November 2015, under Gold Monetisation Scheme.
• Sovereign Gold Bonds (SGBs) are the perfect alternative to investment in physical gold.
• Under the scheme, the issues are made open for subscription in tranches by RBI in consultation with GOI.
• RBI Notifies the terms and conditions for the scheme from time to time.
• The rate of SGB will be declare by RBI before every new tranche by issuing a Press Release.
Sovereign Gold Bond Features
• Eligibility - The bonds will be restricted for sale to resident Indian entities including individuals, HUFs, Trusts, Universities and Charitable institutions. For online application through ICICI Bank, the bonds are for sale to only ‘individuals’ through the Internet Banking Channel and iMobile App. Customers falling into other category of investors may however approach the branch and fill-up the application form to apply for the tranche.
• Denomination - The bonds will be denominated in units of one gram of gold and multiples thereof.
• Minimum size - Minimum permissible investment will be 1 gram of gold.
• Maximum limit - Maximum limit of subscription shall be of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time
• Interest rate - The investors will be paid Interest on the amount of initial investment at the rate notified by RBI for a particular tranche at the time of its launch and is payable semi-annually.
• Tenor - The tenor of the bond will be for a period of 8 years with an exit option from 5th year onwards to be exercised on the interest payment dates.
• Redemption - Redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.
Sovereign Gold Bond Benefits
• No storage risks and costs - If you purchase gold jewellery, you end up worrying about its safekeeping. You may even have to pay for storage in a bank locker. With this type of bond, the risks and costs of storage are eliminated.
• Low risk - The RBI issues these bonds on behalf of the government. Which also means that the Central government backs the scheme. That makes these bonds safer than purchasing actual gold.
• No making charges - When you buy gold jewellery, you pay making charges that you may not be able to redeem upon resale. But with SGB, you need not worry about the making charges or the purity of the gold.
• Tax treatment - 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.
• Tradability - Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
• Transferability - Bonds shall be transferable by execution of an Instrument of transfer in accordance with the provisions of the Government Securities Act.
Sovereign gold bonds Disadvantages
• This is a long term investment unlike physical gold which can be sold immediately.
• Sovereign gold bonds are listed on exchange but the trading volumes are not high, therefore it will be difficult to exit before maturity.