23rd March, 2018

Frequently asked questions about Sovereign Gold Bond Scheme

Sovereign Gold Bond Scheme Frequently Asked Questions

1) What is Sovereign Gold Bond (SGB)? Who issues the bond?

Sovereign Gold Bonds (SGB) are government securities issued in grams of gold to investors on payment of cash. They are a substitute for physical bonds. They are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.

2) Who is eligible to invest in SGBs?

Resident Indians as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGBs. Eligible investors include individuals, Hindu Undivided Family (HUF), trusts, universities, charitable institutions, etc.

3) What are the benefits of investing in SGBs rather than physical gold?

The quantity of gold for which the investor pays is protected, since he/she receives the ongoing market price during bond maturity or premature withdrawal. Unlike holding gold in physical form, the risks and storage costs are eliminated. The bonds carry sovereign guarantee or assurance on redemption amount and on 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 the RBI or in DEMAT form eliminating the risk of loss of scrip, etc.

4) What are the risks involved while investing in SGB?

There may be a risk of capital loss if the market price of gold declines. However, the investors will not lose in terms of the units of gold which he has paid for.

5) What is the minimum and maximum limit for investment in SGBs?

The bonds are issued in denominations of one gram of gold and in multiples thereof. Investors can invest in a minimum of 1 gram of gold and a maximum of 500 grams per person per financial year (March-April). In case of joint holdings, the investment limit of 500 grams will be applied to the first applicant only.

6) When and how frequently does the RBI issue SGBs? What is the current issue price?

The RBI has been issuing Sovereign Gold Bonds since 2015. It is issued in several tranches in a financial year. For instance, RBI issued four tranches of SGB in 2016 viz. SGB-Series I, Series II, Series III & Series IV. The first series of SGB for FY 2017-18 was issued on May 12th priced at Rs. 2901 per gram of gold, offering a discount of Rs. 50 per gram on the nominal value (Rs. 2951) of the SGB. Interested investors can check RBI updates for issuance of future tranches of SGB at https://rbi.org.in/Scripts/BS_SwarnaBharat.aspx.

7) What is the rate of interest offered for the bonds? How will the interest be paid?

The bonds currently bear interest at the rate of 2.5 % (fixed rate) per annum on the amount of initial investment. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal amount. Interest shall be credited semi-annually to the bank account furnished by the investor at the time of buying the SGB.

8) What are the tax implications on interest and capital gains?

Interest earned on the bonds will be liable to income tax and will be treated as interest income. However, the capital gains arising on redemption of SGB to an individual has been exempted. The indexation benefits will also be provided to long term capital gains arising to any person on transfer of bond. Besides, tax deducted at source (TDS) is not applicable on the bond. Lastly, the annual recurring wealth tax of 1 % is not applicable for SGB as in physical gold.

9) Who are the authorized agencies selling the SGBs?

The sovereign bonds will be sold through scheduled commercial banks (excluding RRBs), Stock Holding Corporation of India (SHCI) offices, designated post offices, and recognized stock exchanges namely NSE & BSE, either directly or through agents.

10) What is the tenure of SGBs? Is premature redemption allowed?

Though the tenure of SGBs will be 8 years, early encashment/redemption of the bonds is allowed after 5th year from the date of issue on coupon payment dates. The bonds will be tradable on Exchanges, if held in DEMAT form. It can also be transferred to any other eligible investor. However, for premature withdrawal, investors need to approach the concerned post office/ bank/SHCI office/agent at least one day before the coupon payment date.

11) Can I use these securities as collateral for loans?

Yes. These securities can be used as collateral for loans from banks, financial institutions and non-banking financial companies (NBFC). The Loan-to-Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time.

12) What are the documents required for investing in SGB?

To buy the gold bonds, eligible investors will need to produce their Bank Account, PAN or TAN Card, Aadhaar Card and Voter’s ID. [irp]