10 Things You Need to Know about Sovereign Gold Bonds – The borrowing through gold bonds will form a part of the market borrowing programme of the government. The bonds will be issued by the Reserve Bank.
In a bid to bring down the import of gold and to give an alternative to buy physical gold, the Finance Ministry has announced the Sovereign Gold Bond scheme. This is the first tranche of the gold bond scheme and subsequent tranches would be notified later, it added.
The borrowing through gold bonds will form a part of the market borrowing programme of the government. The bonds will be issued by the Reserve Bank.
Here are ten things you need to know about investing in sovereign gold bonds.
- The gold bond scheme has been announced to give an alternative to consumers in place of physical gold.
- The minimum permissible bond should be worth 2 grams of gold, and the maximum can be 500 grams.
- The Sovereign Gold Bonds will be open for public subscription from November 5 to 20th. The bonds will be eventually issued on November 26. The Sovereign Gold Bonds will offer an interest rate of 2.75%. The interest will be payable semi-annually on the initial value of investment. There would also be a commission of 1% on the subscription amount for distribution of bonds.
- The bonds will be sold through banks and designated post offices as may be notified by the Finance Ministry.
- The tenor of the bond will be for a period of eight years with exit option from 5th year to be exercised on the interest payment dates.
- The price of the bond will be fixed in rupee terms, 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 Jewellers Association Ltd. The same procedure would be followed for calculating the redemption price for the bonds.
- The interest earned on gold bonds would be taxable, and capital gains tax shall be levied as in case of physical gold, the statement said.
- The bonds can be used as collateral for loans and the loan-to-value (LTV) ratio will be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
- The bonds will be tradable on exchanges and will be eligible for Statutory Liquidity Ratio.
- The bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, universities and charitable institutions.