The Fourth Tranche of Prime Minister Modi’s ambitious Sovereign Gold
Bond scheme is up for grabs these days. The scheme can be subscribed
between July 18th
to July 22nd
2016. Let’s understand the scheme and take benefits from it. Since the scheme ends tomorrow, i.e Friday, 22nd
July 2016, I will come to the topic without wasting much of your time. So here’s all all you wanted to know about the Sovereign Gold Bonds.
So, what is the Sovereign Gold Bond?
In a bid to bring down the import of
gold and to give an alternative to buy physical gold, Government of
India had announced the Sovereign Gold Bond scheme. The fourth tranche
of the gold bond scheme ca be subscribed right now and last day to
subscribe for it is tomorrow.
Important things you should know about investing in sovereign gold bonds
1. The gold bond scheme was announced to
give consumers an alternative where they can buy bonds in place of in
place of physical gold.
2. The minimum bond size was worth 1 grams of gold, and the maximum was 500 grams.
3. The Sovereign Gold Bonds were open
for public subscription from July 18th to 22nd and the subscription
period ends tomorrow. The bonds will be issued on August 5, 2016.
4. The Sovereign Gold Bonds were offered
at an interest rate of 2.75%. The interest will be payable
semi-annually on the initial value of investment.
5. There would also be a commission of 1% on the subscription amount for distribution of bonds.
6. The physical certificates as well as De-mat form of bonds can be purchased this time.
7. The tenor of the bond will be for a
period of eight years with exit option from 5th year can be exercised on
the interest payment dates.
8. The price of the bond will be fixed
in rupees, on the basis of the previous week’s (Monday – Friday) simple
average of closing price of gold of 999 purity published by the India
Bullion and Jewelers Association Ltd. The same procedure would be
followed for calculating the redemption price for the bonds.
9. Capital gain tax arising on
redemption of SGB to an individual has been exempted. The indexation
benefit will be provided to LTCG arising to any person on transfer of
bonds. The bonds can be used as collateral for loans and the
loan-to-value ratio will be set equal to ordinary gold loan mandated by
the Reserve Bank from time to time.
10. The bonds will be tradable on exchanges and will be eligible for Statutory Liquidity Ratio.
Benefits of applying in Sovereign Gold Bonds
1. The Sovereign Gold Bonds will be available both in demat and paper form.
2. The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.
3. They will carry sovereign guarantee both on the capital invested and the interest.
4. Bonds can be used as collateral for loans.
5. Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
6. Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
Some important FAQs before we proceed further
Why should I buy SGB rather than physical gold? What are the benefits?
The quantity of gold for which the
investor pays is protected, since he receives the ongoing market price
at the time of redemption/ premature redemption. 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.
Are there any risks in investing in SGBs?
There may be a risk 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.
Can a Minor invest in SGB?
Yes. The application on behalf of the
minor has to be made by his / her guardian. So it’s a good investment
for higher education of your children.
Can I buy 500 grams worth of SGB every year?
Yes. One can buy 500 grams worth of gold every year as the ceiling has been fixed on a fiscal year (April-March) basis.
Is the limit of 500 grams of gold applicable if I buy on the Exchanges?
The limit of 500 grams per financial year is applicable even if the bond is bought on the exchanges.
Can I encash the bond anytime I want? Is premature redemption allowed?
Though the tenor of the bond is 8 years,
early encashment/redemption of the bond is allowed after fifth year
from the date of issue on coupon payment dates. The bond will be
tradable on Exchanges, if held in demat form. It can also be transferred
to any other eligible investor.
Who is eligible to invest in the SGBs?
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.
Whether joint holding will be allowed?
Yes, joint holding is allowed.
If I apply, am I assured of allotment?
If the customer meets the eligibility
criteria, produces a valid identification document and remits the
application money on time, he/she will receive the allotment.
Can I apply online?
Yes. A customer can apply online through the website of the listed scheduled commercial banks.
What do I have to do if I want to exit my investment?
In case of premature redemption,
investors can approach the concerned bank/SHCIL offices/Post Office/
National Stock Exchange of India Ltd./Bombay Stock Exchange Ltd./agent
thirty days before the coupon payment date. Request for premature
redemption can only be entertained if the investor approaches the
concerned bank/post office/Stock Exchange at least one day before the
coupon payment date. The proceeds will be credited to the customer’s
bank account provided at the time of applying for the bond.
Can I use these securities as collateral for loans?
Yes, these securities are eligible to be
used as collateral for loans from banks, financial Institutions and
Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be
the same as applicable to ordinary gold loan prescribed by RBI from time
What are the payment options for investing in the Sovereign Gold Bonds?
Payment can be made through cash (upto Rs. 20000)/cheques/demand draft/electronic fund transfer.
We hope that we have answered all your
queries about Sovereign Gold Bond. Please feel free to raise question if
you feel you need information on this topic.
Have a great day and happy Investing.
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