Sovereign Gold Bond Scheme opens tomorrow. Here’s what you need to know

The Sovereign Gold Bond Scheme (SGB), Series V or the fifth tranche, will be open for subscription from Monday with a settlement date of August 17, 2021, according to the Union finance ministry. The government has fixed the issue price of the latest tranche of the Sovereign Gold Bond Scheme 2021-22 at 4,807 per gram of gold.

1. What are Sovereign Gold Bonds?

Sovereign Gold Bonds, substitutes for holding physical gold, are government securities denominated in grams of gold and issued by the Reserve Bank of India on behalf of the government. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.

2. What are the benefits of buying SGBs?

The quantity of gold for which the investor pays is protected as they receive the ongoing market price at the time of redemption or premature redemption. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of RBI or in demat form eliminating the risk of loss of scrip etc.

3. Are there any risks involved?

There may be a risk of capital loss if the market price of gold declines. But you will not lose in terms of the units of gold which you paid for.

4. Who can invest in SGBs?

Indian residents as defined under Foreign Exchange Management Act, 1999, are eligible to invest in SGB. Eligible investors include individuals, Hindu Undived Families (HUFs), trusts, universities and charitable institutions. If your residential status changes from resident to non-resident, you may continue to hold SGB till early redemption or maturity.

Joint holding is allowed and even a minor can invest in SGB. Guardians can make the application on behalf of the minor.

5. Who are the authorised agencies selling SGBs?

Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated post offices, Stock Holding Corporation of India Ltd (SHCIL) and the authorised stock exchanges either directly or through their agents.

You can get the application form from these entities as well as agents. It can also be downloaded from RBI’s website and banks may also provide an online application facility.

6. What is the minimum and maximum limit for investment?

The bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the bond is one gram with a maximum limit of subscription of 4kg for individuals, 4kg for HUFs and 20kg for trusts and similar entities notified by the government from time to time per fiscal year from April to March. In the case of joint holding, the limit applies to the first applicant.

The annual ceiling will include bonds subscribed under different tranches during initial issuance by the government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other financial institutions

7. What is the interest rate and how will it be paid?

The bonds bear interest at a fixed rate of 2.50 per cent per annum on the amount of initial investment. Interest is credited semi-annually to your bank account and the last interest will be payable on maturity along with the principal.

8. What are the payment options for investing in the Sovereign Gold Bonds?

You can make the payment through cash of up to 20,000, cheques, demand draft or electronic fund transfer.

9. Can I apply online?

You can apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

10. At what price are the bonds sold?

The nominal value of Gold Bonds is in Indian rupee fixed on the basis of a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last three business days of the week preceding the subscription period.

11. What are the procedures involved during redemption?

Investors will be advised one month before maturity regarding the ensuing maturity of the bond. On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record.

In case there are changes in any details, such as account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.

12. Can I encash the bond anytime I want? Is premature redemption allowed?

Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates. The bond will be tradable on exchanges, if held in demat form. It can also be transferred to any other eligible investor.

13. What do I have to do if I want to exit my investment?

You can approach the concerned bank, SHCIL offices, post office or the agent 30 days before the coupon payment date. Request for premature redemption can only be entertained if you approach the concerned bank or the post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

14. Can you use these securities as collateral for loans?

These securities are eligible to be used as collateral for loans from banks, financial institutions and Non-Banking Financial Companies (NBFCs). The loan to value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Granting loans against SGBs would be subject to the decision of the bank and financing agency and cannot be inferred as a matter of right.

15. What are the tax implications on interest and capital gain?

Interest on the bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.

16. Is tax deducted at source (TDS) applicable?

TDS is not applicable on the bond but RBI says it is the bond holder’s responsibility to comply with tax laws.

(Source: RBI)

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