The Reserve Bank of India (RBI) has announced that the seventh tranche of the Sovereign Gold Bond (SGB) scheme will be open for investment for five days, starting from the 12th of October, 2020. This scheme allows investors to invest in bonds that are linked to the market price of gold, with these bonds being issued by the RBI on behalf of the Government of India.
About The Sovereign Gold Bond Scheme
Launched in November 2015 by the Government of India, the core objective of the SGB scheme is to redirect the demand for physical gold towards financial savings. By offering a gold-linked investment option, it aims to convert a portion of the country’s domestic savings, which were earlier used for buying gold, into financial savings. Under this scheme, Gold Bonds are issued as Government of India Stock under the Government Securities (GS) Act, 2006.
The Distribution Network
To ensure easy accessibility and wide distribution, these bonds are sold through various channels. These include commercial banks, Stock Holding Corporation of India Limited (SHCIL), selected post offices, and recognised stock exchanges such as the National Stock Exchange of India Limited and the Bombay Stock Exchange. Investors can buy these bonds either directly or via agents.
Eligibility Criteria
The Sovereign Gold Bond scheme comes with certain eligibility requirements. They are available to resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions in India.
Features of the Bond
The bonds carry an issue price, which is based on the spot price of gold, as provided by the Mumbai-based India Bullion and Jewellers Association (IBJA). For the seventh tranche, the price stands at Rs. 5,051 per unit. Investors making a digital payment for the bonds receive a discount of Rs 50 on each unit. While the minimum permissible investment is one gram of gold, there are also specified upper limits. For retail investors and HUFs, the limit is four kilograms (4000 units) per financial year. Trusts and similar entities can invest up to 20 kilograms per year.
Term and Interest Rate
Purchased gold bonds mature after eight years. However, investors have the option to exit after the first five years. The interest rate is fixed at 2.5% per annum, payable semi-annually. It’s important to note that the interest earned on these Gold Bonds is taxable under the Income Tax Act, 1961.
Benefits of Investing
Besides offering a secure and government-backed investment route, these bonds can be used as collateral for loans. Any capital gains tax due on redemption of SGB to an individual has been exempted under this scheme. Redemption refers to the repurchase of a bond by the issuer at or before maturity. Capital gains are profits earned from the sale of an asset when the selling price exceeds its purchase cost.