The seventh series of the sovereign gold bond (SGB) scheme has opened today, and it will be available through October 29. It will be issued to applicants on November 2.
This is the first of four tranches of the SGB scheme that has been announced by the government on October 21 till the end of the financial year, with the remaining tranches to take place from November 29 to December 4, from January 10 - 14 and February 28 to March 4 next year respectively.
The investment instrument, first launched in 2015, is linked to the price of gold and has emerged a popular alternate to holding the metal physically.
7 things you need to know about the Sovereign Gold Bond Scheme
1. What is the SBG scheme?
The SGB scheme is a government debt security that is denominated in grams of gold.
It is linked to the price of gold since at the time of subscription, it assumes the simple average of the price of gold of 999 purity of the previously three business days, which is the published by the Indian Bullion and Jeweler's Association. The same calculation applies to the price of the bond at redemption.
This makes the SGB an alternative to holding physical gold, without the risk of physical loss of the asset, making charges, or purity.
It can only be purchased by individuals, Hindu undivided families (HUF), charities, trusts and universities.
The Reserve Bank Of India issues the bond on behalf of the Government of India.
The tenor of the bond is eight years. However, the bond is permitted to be prematurely redeemed after the fifth year.
2. What is the price of the bond?
The minimum denomination of the bond is one gram of gold, which is set at ₹4,761 for this tranche of the scheme, and the bond can be purchased in multiples of 1 gram. Likewise, the bonds can also be redeemed partially in multiples of one gram.
Therefore, at redemption, the bondholder may be entitled to a capital gains or a capital depending on the prevailing price of gold, and interest. Though, the SGB secures the units which the bondholder has purchased (in terms of units of gold).
However, the RBI has said that for customers who make a payment towards this scheme digitally, there is a discount of ₹50 per gram, which brings the price down to ₹4,711.
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3. How much interest does the SGB bear?
The bond bears a fixed interest rate of 2.5% on the investment, which will be credited into the bank account of its holder semi-annually or two times a year.
The principal amount of bond will be credited with the last interest paid to the bondholder.
4. Where can I buy these bonds?
Applications for the bonds can be made at stock exchanges and through stock brokers. Other institutions where applications can be made are through banks, notified post offices, or through the Stock Holding Corporation of India Limited.
These bonds can be purchased online through the websites of banks and brokers.
5. What is the upper limit on the holding of these bonds?
For HUFs and individuals, the upper limit on the purchasing of these bonds is 4 kilograms.
For charities, trusts and universities, the upper limit is 20 kilograms.
6. Are these bonds transferable?
Yes. These bonds are transferable, for purposes such as gifting, provided the recipient is eligible to hold the bond, and are regulated by the appropriated regulation.
Further, these bonds can also be used as collateral to obtain loans from banks.
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7. What are the tax implications of the bond?
The interest attained on the bond will be taxed under the Income Tax Act, though any capital gains made from these bonds is exempt.
Long term indexation benefits (or adjusting the price of something for inflation to maintain its purchasing power) is also available to any person on the transfer of the bond.
The RBI's detailed rules and guidelines on the scheme can be read here.
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