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Sovereign Gold Bond
Prime Minister Narendra Modi on Thursday 5th November, 2015 launched three schemes related to gold. The gold montetisation scheme is aimed to lure tonnes of the precious metal from India households into the banking system. The scheme is aimed at unlocking 20,000 tonnes of the precious metal lying idle in households and temples, estimated at around $800 billion. Under this scheme, banks will collect gold for up to 15 years and pay 2.25-2.50 per cent interest per year.

PM Modi also launched sovereign gold bonds that offer 2.75 per cent interest to investors to cut physical buying of the precious metal. Both these schemes are aimed at cutting reliance on gold imports.

Huge gold imports pushed India's current account deficit to a record $190 billion in 2013, prompting the government to hike its duty on imports to a record 10 per cent. In 2014-15, India imported an estimated $34 billion of gold.

Also, as part of the gold monetisation programme, the prime minister also launched first-ever national gold coin minted in India which will have the national emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side.

Initially the coins will be available in denominations of 5 and 10 grams.

What is Sovereign Gold Bonds?
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.

Objective
Need for a Sovereign Gold Bond
  • The main idea is to reduce the demand for physical gold.
  • Shift part of the estimated 300 tons of physical bars and coins purchased every year for Investment into 'demat' gold bonds.

Agency
  • Bonds will be issued on behalf of the Government of India by RBI.
  • Issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by Government.

Sale to Indian entities
Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities, charitable institutions, etc.

Features
  • The SGB offers a superior alternative to holding gold in physical form.
  • The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.
  • SGB is free from issues like making charges and purity in the case of gold in jewellery form.
  • The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
  • The Bonds bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
  • The Sovereign Gold Bonds will be available both in demat and paper form.
  • The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.
  • They will carry sovereign guarantee both on the capital invested and the interest.
  • Bonds can be used as collateral for loans.
  • Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
  • Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
  • In Sovereign Gold Bonds, capital gains tax treatment will be the same as for physical gold for an 'individual' investor. The department of revenue has said that they will consider indexation benefit if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption.

Where can investors get the application form?
The application form will be provided by the issuing banks/designated Post Offices/agents. It can also be downloaded from the RBI's website. Banks may also provide online application facility.

What are the Know-Your-Customer (KYC) norms?
Know-Your-Customer (KYC) norms will be the same as that for purchase of physical form of gold. Identification documents such as Aadhaar card/PAN or TAN /Passport / Voter ID card will be required. KYC will be done by the issuing banks/Post Offices/agents.

What is the minimum and maximum limit for investment?
The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be two grams with a maximum buying limit of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.

Who are the authorized agencies selling the SGBs?
Bonds are sold through scheduled commercial banks and designated Post Offices either directly or through their agents like NBFCs, NSC agents, etc.

When will the customers be issued Holding Certificate?
The customers will be issued Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/Post Offices/agents or obtained directly from RBI on email, if email address is provided in the application form.

At what price the bonds are sold
Price of bond will be fixed in Indian Rupees on the basis of the previous week's (Monday – Friday) simple average price for gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA). The issue price will be disseminated by the Reserve Bank of India.