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 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.
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.