SOVEREIGN GOLD BOND- ECONOMY

SOVEREIGN GOLD BOND- ECONOMY

News: Sovereign Gold Bond issue price fixed at ₹5,611 per gram

 

More in news:

  1. The issue price for the next tranche of Sovereign Gold Bond Scheme 2022­-23, which will open for subscription for five days, has been fixed at ₹5,611 per gram of gold, the RBI said.
  2. Government of India, in consultation with RBI, has decided to offer a discount of ₹50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. “For such investors, the issue price will be ₹5,561 per gram of gold.

 

Go back to Basics:

What are Sovereign Gold Bonds?

  1. Gold denominated bonds which was launched in November 2015.
  2. Objective to reduce the demand for physical gold shifts a part of the domestic savings - used for the purchase of gold - into financial savings.
  3. The Gold Bonds are issued as Government of India Stock under the Government Securities (GS) Act, 2006.
  4. These are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
  5. Bonds are sold through Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
  6. The bonds are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions.

 

  1. Issue Price: Gold bond prices are linked to the price of gold of 999 purity (24 carats) published by India Bullion and Jewellers Association (IBJA), Mumbai.
  2. Investment Limit: Gold bonds can be purchased in the multiples of one unit, up to certain thresholds for different investors.
  3. The upper limit for retail (individual) investors and HUFs is 4 kilograms (4,000 units) each per financial year. For trusts and similar entities, an upper limit of 20 kilograms per financial year is applicable.
  4. Minimum permissible investment is 1 gram of gold.
  5. Term: The gold bonds come with a maturity period of eight years, with an option to exit the investment after the first five years.
  6. Interest Rate: A fixed rate of 2.5% per annum is applicable on the scheme, payable semi-annually.
  7. The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961.
  8. Benefit:

●       Bonds can be used as collateral for loans.

●       The capital gains tax arising on redemption of SGB to an individual has been exempted.

●       Redemption is the act of an issuer repurchasing a bond at or before maturity.

●       Capital gain is the profit earned on the sale of an asset like stocks, bonds or real estate. It results in when the selling price of an asset exceeds its purchase price

  1. Disadvantages of Investing in SGB:

●       This is a long term investment unlike physical gold which can be sold immediately.

●       Sovereign gold bonds are listed on exchange but the trading volumes are not high, therefore it will be difficult to exit before maturity.