The Reserve Bank of India (RBI) has revealed the issue price for the upcoming Sovereign Gold Bond (SGB) Tranche 2. SGBs, introduced in 2015 under the Gold Monetization Scheme by the Government of India, are government securities issued by the RBI on behalf of the government, providing an alternative to physical gold ownership. These bonds are denominated in grams of gold, with a basic unit of 1 gram, and investors purchase them with cash, redeeming them for cash upon maturity after 8 years with exit options in the 5th, 6th, and 7th years. There are limits on the quantity of gold individuals and entities can buy, with an annual interest rate of 2.5%. The interest is taxable under the Income Tax Act, 1961, and SGBs can serve as collateral for loans.
Facts/Terms for prelims
- Gold Monetization Scheme: The Gold Monetization Scheme is a government initiative aimed at mobilizing the gold reserves held by individuals and institutions in India, turning physical gold into a financial asset.
- Denominated: Denominated means expressing the value of a financial instrument or asset in a particular unit of currency or measurement, such as grams of gold in the case of SGBs.
- Exit Option: An exit option allows investors to prematurely redeem or exit their investment before the maturity date, which in the case of SGBs is available in the 5th, 6th, and 7th years.
- Income Tax Act, 1961: The Income Tax Act, 1961, is the legislation that governs income taxation in India, including the tax treatment of income generated from investments like Sovereign Gold Bonds.
- Collateral: Collateral refers to assets or securities offered by a borrower to a lender as security for a loan. In this context, SGBs can be used as collateral, providing security for loans taken by the bondholders.