The Indian government, in collaboration with the Reserve Bank of India (RBI), has announced its decision to issue Sovereign Gold Bonds (SGBs) for the financial year 2018-19. The issuance, scheduled for every month between October 2018 and February 2019, aims to convert a portion of the country’s domestic savings, usually invested in physical gold, into financial savings. This initiative follows the launch of the sovereign gold bond scheme in November 2015 and forms part of the government’s efforts to mitigate the impact of gold and crude oil on India’s current account deficit.
Sovereign Gold Bonds: An Overview
The SGBs are government securities valued in grams of gold, serving as an alternative to holding physical gold. The government introduces these bonds to reduce the demand for physical gold and develop a financial asset that can replace metal gold purchases. The issuance of these bonds is overseen by the RBI on behalf of the Indian government.
Who Can Purchase These Bonds?
The Government restricts the sale of these bonds to resident entities, including individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions.
Bonds Denomination and Tenor
The bonds have a basic unit of one gram and will be issued in multiples thereof. Each bond will have a maturity term of eight years; however, buyers have the option to exit in the fifth, sixth, or seventh year.
Investment Limits
The minimum investment limit is set at one gram of gold. In contrast, the maximum limit varies for different categories of investors: 4 KG for individuals, 4 Kg for HUFs, and 20 Kg for trusts and similar entities per fiscal year (April-March).
Sales Channels for SGBs
These bonds will be sold through banks, the Stock Holding Corporation of India Limited (SHCIL), designated post offices, and stock exchanges such as the National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
Interest Rates and Payments
Investors in SGBs will earn a fixed interest rate of 2.50 percent per annum, payable semi-annually on the nominal value. Payments can be made via demand draft, cheque, and electronic banking, with cash payments allowed up to a maximum of Rs 20,000. Those who subscribe online and pay digitally will get a discount of Rs 50 per gram on the issue price of the Gold Bonds.
Tax Treatment and Collateral
The interest earned on these bonds is taxable under the Income Tax Act, 1961. However, the capital gains tax arising from SGB redemption is exempted for individuals. Further, these bonds can serve as collateral for loans.
Tradability of SGBs
You can trade these bonds on stock exchanges within two weeks of issuance on a date specified by the RBI. The tradability feature adds liquidity to these bonds, making them a preferred choice for investors.
