Indian Government has launched the Sovereign Gold Bond (SGB) scheme as an alternative investment form to physical gold. Sovereign Gold Bond Scheme, investors get their returns on the basis of the prevailing gold price. Since this is a bond, you can hold it in demat or tangible paper form.
Sovereign Gold Bond Scheme-RBI
Sovereign Gold Bond schemes are government securities; denominated in grams of gold. They are replacements for holding physical gold. Investors must pay the issue price in cash, and he can redeem the bonds in cash on maturity. RBI issues the bond on behalf of the Indian Government.
A person resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Qualified investors include individuals, HUF, trusts, universities, charitable institutions, etc. This scheme allows joint holding, and even the minor can invest in Sovereign Gold Bond Scheme on the basis of an application made by his/her guardian on behalf of the minor.
The issuing banks/SHCIL offices/designated post offices/agents will give the application form. You can also download it from the RBI’s website. Banks may also offer online application facility. KYC norms will be alike as that for the purchase of the physical form of gold. You will need documents such as Aadhaar card/PAN or TAN/passport/Voter ID. Bank’s customers won’t need any separate KYC.
A customer can apply online by the website of the registered scheduled commercial banks. The issue rate of the Gold Bonds will be 50 per gram less as compared to the nominal value to those investors applying online & the payment against the application is made through digital mode.
Minimum & maximum limit for investment
The bonds are distributed in the denomination of one gram of gold and multiples thereof. Minimum investment in the bond shall be one gram with a maximum limit of subscription of 4kg for individuals, 4kg for HUF and 20kg for trusts & similar entities notified by the government from time to time per fiscal year (April-March). In case of joint holding, the limit applies to the first applicant. The year-end ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not cover the holdings as collateral by banks and other Financial Institutions.
The quantity of gold for which the investor pays is preserved; since he receives the continuous market price at the time of redemption/premature redemption. The SGB offers a better alternative to holding gold in physical form. There are no risks and costs of storage. Investors are assured of the market value of gold at the time of maturity & periodical interest. SGB is clear from issues like making charges and purity in the case of gold in jewelry form. The bonds are kept in the books of the RBI or in demat form eliminating the risk of loss of scrip etc.
Some important notes regarding Sovereign Gold Bond Scheme
- There may be a chance of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.
- Each family member can buy the bonds under his/her own name.
- An investor/trust can buy 4kg/20kg worth of gold each year; as the ceiling is fixed on a fiscal year (April-March) basis.
- The maximum limit will apply to the first applicant in case of a joint holding for that specific application.
- The bonds bear the interest at the rate of 2.50% (fixed rate) per annum on the amount of initial investment. The investor will get the interest semi-annually in his bank account, and the last interest on maturity along with the principal.
- The concerning authority will issue a certificate of holding to the customers on the date of issuance of the Sovereign Gold Bond Scheme. An investor can obtain Certificate of Holding from the issuing banks/Post Offices/SHCIL offices/Designated stock exchanges/agents or; can receive directly from RBI on email if he had provided an email address in the application form.
- RBI will publish the price of gold for the appropriate tranche website two days before the issue opens.
- On maturity, an investor shall redeem the gold bonds in Indian rupees and; the redemption price is on the basis of the simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment; published by the Indian Bullion and Jewelers Association limited. Both interest & redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.
- The procedures involved in the redemption are as under:
-The investor will get notify one month before maturity about the ensuing maturity of the bond.
-On the date of maturity, the concerned bank/post office will credit the maturity gains to the bank account according to the details on record.
-If there are changes in any details, such as account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.
- Though the course of the bond is eight years, there is an option of early encashment/redemption of the bond after the fifth year from the date of issue on coupon payment dates. The bond will be tradable on exchanges if held in demat form. An investor can transfer it to any other qualified investor.
- In case of premature redemption, investors can approach the concerned bank/Post Office/SHCIL offices/agent thirty days before the coupon payment date. Bank/post office will only consider the request for premature redemption; only if the investor requests the concerned bank/post office at least one day before the coupon payment date. The concerned bank office/post office will credit the proceeds to the customer’s bank account presented at the time of applying for the bond.
- An investor can gift/transfer the bond to a relative/friend/anybody whoever fulfills the eligibility criteria. The bonds shall be transferable as per the provisions of the Government Securities Act 2006 and the Government Securities Regulations 2007 before maturity by execution of an instrument of transfer which is available with the issuing agents.
- These securities are qualified & you can use them as collateral for loans from banks, financial institutions, and non-banking financial companies. The loan to value ratio will be the equivalent as applicable to ordinary gold loan prescribed by RBI from time to time.
- Interest on the bonds will be taxable as per the outlines of the Income-tax Act, 1961. Income Tax Act has exempted the capital gains tax arising on redemption of Sovereign Gold Bond Scheme to an individual. The indexation benefits will be provided to long-term capital gains arising to any person on the transfer of bond.
- TDS is not applicable to the bond. However, it is the responsibility of the bondholder to comply with the tax laws.
- The issuing banks/Post offices/SHCIL offices/agents/designated stock exchanges through which you have purchased these securities will provide other customer services such as change of address, early redemption, nomination, grievance redressal, transfer applications, etc.
- An investor can make payments through cash up to 20,000/cheques/demand draft/electronic fund transfer.
- Nomination facility is also available as per the provision of the Government Securities Act 2006 and Government Securities Regulation 2007. A nomination form is available with the application form.
- An investor can hold the bonds in the demat account. But he must make a specific request for the same in the application form itself. Till the process of completion of dematerialization; the bonds will be held in RBI’s books. The facility for the conversation to demat will also be available after allotment of the bond.
- You can trade the bonds from a day which RBI informs. However, note that you can trade only those bonds on stock exchanges, which you hold in de-mat form. You can also sell or transfer the bonds as per provisions of Government Securities Act, 2006.
- You can redeem the part holdings in multiples of one gm.
- RBI has created a dedicated e-mail to receive doubts from members of public on Sovereign Gold Bond Scheme. Investors can mail their inquiries to this email id.