Benefits of Sovereign Gold Bond (SGB) over physical form of gold
Today (October 3, 2015), the Government announced the issue price of Sovereign Gold Bond (SGB) at Rs.2684/- per gram of gold. The SGB bonds are denominated in grams of gold to be issued on November 26, 2015 by RBI on behalf of Government of India.The tranche of SGB will be kept open for investors with effect from November 05, 2015 to November 20, 2015. It is learnt that the Government of India may, with prior notice, close the Scheme before the above notified period.
Related article: Benefits of Sovereign Gold Bonds over physical form:
The buyers of Sovereign Gold Bonds (SGB) have multiple advantages compared to holding physical form of gold. It would eliminate the risk and cost of holding gold in physical form. It has several other advantages compared to jewellaery form of gold, as it is free from making charges and market value is paid on the basis of previous week’s average price as applicable for gold of 999 purity published by IBJA at the time of redemption. The investors earn 2.75% interest p.a on the initial investment amount which will be credited to the bank account of the investor at the interval of half year. The investor receives back the money at the market rate at the time of maturity for the units of gold held by him. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc. Like gold loans, SGBs can be used as collateral for loans. The lien can be marked at the depository by the bank. The bonds can be traded by the investor on exchanges/NDS-OM from a date to be notified by RBI.The maturity period of the bond is 8 years. However, the investors who wants to encash/redeem the bond before the maturity period is allowed to encash after 5 years from the date of issue on coupon dates. The bonds can be transferred in the name of other eligible resident Indian. The investments in SGBs will be eligible for Statutory Liquidity Ratio.
The resident Indians (individuals, HUFs, Trusts, Universities, Charitable institutions etc.,) as defined under FEMA Act 1999 are eligible to invest both in single name or joint names. In case of joint names, the buying limit applies to the first applicant.The bonds can also be purchased in the minor’s name.
Maximum investment in terms of denominated gold units:
The Bonds issued will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.The resident Indians can invest in above bonds with the minimum investment in gold units of two grams. The maximum buying limit allowed to a person per fiscal year is 500 grams of gold units. The limit of 500 grams per financial year is applicable even if the bond is bought on Exchanges.
Peridicity of issuance of new bonds:
The Bonds will be issued in tranches at a specified intervals notified by RBI. Each tranche will be kept open for a specified period to the investors.
Method of fixing price of SGB:
Both the issue price and redemption of bonds are worked out on the basis of the previous week’s (Monday to Friday) average closing price published by the Indian Bullion and Jewllers Association Ltd. (IBJA) on one gram of gold of 999 purity. The price of gold for the relevant tranche of SGB will be announced by RBI two days before the issue opens.
Nomination facility: Available
TDS and Capital gain tax:
No TDS will be deducted from interest paid on bonds. However, the interest earned on the bonds is taxable as per the provisions of income tax rules. The Capital gains treatment will be the same as applicable for physical gold.
It is same as applicable for purchase of physical gold.
If the gold rate in the market declines at the time of encashment of bonds the investor may incur capital loss.
Availability of application forms:
The selected receiving offfices of commercial banks, designated post offices or agents for the issue will provide application forms for the SGB and accept the applications during the period the tranche kept open. The facility of downloading online application is also provided by RBI and selected bank’s website.
(source: RBI press release)