Sovereign Gold Bonds come with a tenor of eight years, with an exit option after the fifth year
Government-run Sovereign Gold Bonds (SGBs) will open for subscription on Monday, July 6 in a fourth instalment so far this financial year. Issued by the Reserve Bank of India (RBI) on behalf of the government, the gold bonds are part of the central government’s market-borrowing programme. Each gold bond represents the value equivalent to one gram of gold. The subscription for the gold bonds – the Sovereign Gold Bond 2020-21 scheme – is set to open once again at a time when the rapid spread of the coronavirus (COVID-19) pandemic has rattled the financial markets around the globe, but sent gold rates to record levels with an increase in the appeal of the yellow metal as a safe-haven.
Here are 10 key things to know about the Sovereign Gold Bond scheme:
Interest Rate: A fixed rate of 2.5 per cent per annum is applicable on the Sovereign Gold Bonds, payable semi-annually. (Also Read: Physical Gold, Gold ETFs Or Gold Bonds: How To Approach Gold?)
Who Can Buy: Resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions can invest in the SGB scheme.
Issue Price: The issue price for the fourth tranche of the gold bond scheme is fixed at Rs 4,852 per gram, the RBI said on Friday. The price is determined on the basis of a simple average of the closing price 999-purity gold published by the Mumbai-based India Bullion and Jewellers Association (IBJA) for the last three working days of the week preceding subscription.
Discount: Online subscribers paying through the digital mode get a discount of Rs 50 on every gram of gold. The same method is used for determining the redemption price.
Important Dates: The fourth tranche of the scheme will remain open for five consecutive days starting July 6. The gold bond scheme will next open for subscription in August and September.
Financial experts recommend gold bonds as an effective way to acquire gold as an investment. “Sovereign gold bonds are perhaps one of the best options for investors who want gold in their portfolio and do have a long-term investment horizon… It is always advisable to have exposure to some amount of gold in an investment portfolio for hedging and diversification purposes and the lock-in period serves that purpose very well,” said Rahul Agarwal, director at Delhi-based financial services firm Wealth Discovery.
How To Invest: The SGBs are sold through commercial banks, the Stock Holding Corporation, designated post offices, and stock exchanges BSE and NSE. The bonds are held in RBI books or in demat form.
Investment Limit: A minimum of one gram and a maximum of four kilograms of gold can be acquired by eligible individuals and HUFs in a financial year. Trusts and similar entities can purchase up to 20 kilograms in a financial year.
Lock-In: The gold bond scheme comes with a tenor of eight years, with an exit option after the fifth year. The option can be exercised on interest payment dates.
Tax Implication: The interest on gold bonds is taxable. However, the capital gains arising out of redemption are exempted for individual investors.
| Tranche | Date of Subscription | Date of Issuance |
|---|---|---|
| 2020-21 Series I | April 20-24, 2020 | April 28, 2020 |
| 2020-21 Series II | May 11-15, 2020 | May 19, 2020 |
| 2020-21 Series III | June 8-12, 2020 | June 16, 2020 |
| 2020-21 Series IV | July 6-10, 2020 | July 14, 2020 |
| 2020-21 Series V | August 3-7, 2020 | August 11, 2020 |
| 2020-21 Series VI | August 31-September 4, 2020 | September 8, 2020 |
| (Source: Ministry of Finance) | ||
(The SGB scheme 2020-21 first hit the markets in April 2020)
