Sovereign Gold Bonds Scheme is an indirect way of investing in Gold. Instead of buying Physical Gold, investors can invest in gold in a paper form through Sovereign Gold Bonds. The under-lying asset for these bonds is Gold. These bonds track the price of gold, plus an extra interest earning on top of that.
The Reserve Bank of India, in consultation with the Government of India, has decided to launch Sovereign Gold Bonds Scheme March 2016 public issue. Applications for the bond will be accepted from March 8, 2016 to March 14, 2016.
The first tranche (issue) of the Gold Bonds scheme was launched in November 2015. The issue had got a subscription for 915.95 kg gold amounting to Rs 246 crore.
The second tranche (issue) was launched in Jan, 2016. The issue had got a subscription for around 2,800 kg gold amounting to roughly Rs 750 crore.
Sovereign Gold Bonds Scheme March 2016
Applications for the Third tranche of ‘Sovereign Gold Bonds Scheme’ will be accepted from 8th March to 14th March, 2016. The Gold bonds will be issued on 29th March, 2016. The Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL) and designated post offices.
Below are the key features of Gold Bonds Scheme March 2016;
- Third Issue Subscription dates : 8th March to 14th March 2016.
- Public Issue Price : The Reserve Bank has fixed the public issue price at Rs 2,916 per gram for the sovereign gold bonds. The issue price for first tranche was at Rs 2,684 per gram & the issue price for the second tranche was at Rs 2,600 per gram.
- Who can buy Gold bonds? : The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities and charitable institutions.
- Duration of Bonds : The tenor (tenure) of the Bond will be for a period of 8 years with exit option from 5th year which can be exercised on the interest payment dates.
- Minimum investment Size : Minimum permissible investment will be 2 units (i.e. 2 grams of gold).
- Maximum allowed investment : The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). A self-declaration to this effect will be obtained.
- Interest rate on Gold Bonds : The investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment.
- Where to buy Gold Bonds ? : Bonds will be sold through banks, SCHIL and designated Post Offices, as may be notified, either directly or through agents.
- Payment mode : Payment for the Bonds will be through cash payment (upto a maximum of Rs. 20,000) or demand draft or cheque or electronic banking.
- The bonds are available in demat and paper form.
- KYC Documentation : Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
- Transfer of Bonds : The bond can be gifted/transferable to a relative/friend/anybody.
Budget 2016-17 – Gold Bonds & Capital Gain Taxes
- According to the Budget 2016 proposals, gold bonds will be exempted from capital gains (LTCG) tax at the time of redemption. So, if you hold the gold bonds till the maturity date and if you make any long term capital gains when redeeming your gold bonds, there will not be any capital gain taxes on the profit you make.
- However, kindly note that Long term capital gains arising to any person on sale or transfer of SGB will continue to be taxable and eligible for indexation benefits.
- The interest payments on Gold bonds shall be taxable.
- TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.
Sovereign Gold Bonds Scheme March 2016 & Application Form
The application forms for buying Sovereign Gold Bonds are available at banks (all schedule commercial banks) or at designated post office branches. You may click on the below image to download the application form (Form A).
(Read my article on : How to fill Gold Bonds Scheme application form?)
If you buy Gold mutual funds or Gold ETFs (Exchange Traded Funds), you have to bear ‘fund management charges’. In case of Gold bonds, no charges are applicable. Also, like gold funds and ETFs, you don’t have to worry about storage of physical gold or pay locker fees in case of Gold Bonds.
Also, the budget 2016 has added some glitter to Gold bonds scheme by making capital gains tax exempt.
If you would like to invest a portion of your savings in Gold for long-term, Gold bonds outscore the Gold funds / physical gold and can be a preferred mode of investing in Gold.
Have you invested in Gold Bonds? Will you subscribe to Sovereign Gold Bonds Scheme March 2016 issue? Kindly share your views on Gold Bonds?
(Personally, I have never invested in Gold. The extent of volatility of Gold prices in the recent years is more than that of Equity securities. So, the risk-reward ratio is certainly not in favor of investing in Gold.)