Understanding the Sovereign Gold Bond Scheme in India

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Sovereign Gold Bond Scheme

Sovereign Gold Bond Scheme is one of the most prominent schemes and was launched by Govt in November 2015, under Gold Monetisation Scheme. Under this scheme that has been rolled out by the Government, the issues are made open for subscription in tranches by the Reserve Bank of India in consultation with the Government Of India. The RBI has the power to hold and circulate the rules and change them from time to time. The subscription for the Sovereign Gold Bond will be open as per the following calendar. The rate of the circulated scheme will be declared by RBI before every new tranche by issuing a Press Release.

As per the rules that have been laid down by the RBI and the prominent instructions, it reads that “Every application must be accompanied by the attachment of the identity proof like the ‘PAN Number’ that has been issued by the Income Tax Department to the individual investor(s)’’. The main reason behind this is that the PAN number of the first/ sole applicant is mandatory.

Features of the Scheme

● The Sovereign Gold Bond Scheme is formulated by the Reserve Bank India, as directed by the Government of India.

● The Sovereign Gold Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.

● The tenure of this Bond stands at 8 years with exit options available in the 5th, 6th, and 7th years. This is to be exercised on the interest payment dates.

● The minimum investment limit will be 1 gram of gold.

● Max subscriptions for individuals shall be 4 KG, for Hindu Undivided Families 4 KG. For trusts and similar entities, 20 KG per fiscal year, which is April-March and the limit will be notified by the Government from time to time. A self-declaration to this effect will be mandatory to be obtained.

● RBI will issue a Press Release stating the issue price of the Sovereign Gold Bond before the new Issue. The market price of the Bond for the rolled scheme will be fixed in the currency of the Indian Rupees and is based on a simple average of the closing price of gold of 999 purity that has been published by the India Bullion and Jewellers Association Limited that is the IBJA for the last 3 business days of the week that is likely to be preceding the subscription period.

● Payment for the Bonds will be through cash payment have a limit up to a maximum of Rs. 20,000/- or through a demand draft or cheque or electronic banking.

● The Sovereign Gold Bond Scheme will be issued as per the Government of India Stocks under the Government Security Act, 2006. Investors will receive a Holding Certificate for the same. These bond schemes are eligible for conversion into the Demat form.

● The redemption price of these investments in the form of bonds under the rolled scheme will be in Indian Rupees based on a simple average of the closing price of gold of 999 purity of the previous 3 working days as recognized and published by IBJA.

● All the branches of the State Bank of India are authorized to accept the subscription that is advanced under the applications for the proposed scheme.

● The potential bond investors enjoy the right to be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.

● These are collateral for loans. The loan-to-value (LTV) ratio can be recognized as a part of the market and equal to the ordinary gold loan that the Reserve Bank mandates from time to time. The lien on the bond that is issued as per the guidelines shall be marked in the depository by the authorized banks.

If you sign up for a loan against SGBs, you should know that it is subject to approval by the bank/financial agency and cannot be taken as a matter of right. The bonds will be tradable on stock exchanges within a fortnight of issuance on a date specified by the RBI.

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