Sovereign Gold Bond Scheme: Features, Price, Interest, Maturity

On 5th November 2015, India’s honorable prime minister launched four gold related investment schemes:

Gold Monetization Scheme
Gold Coin Scheme
Sovereign Gold Bond
Gold Bullion Scheme

Let’s explore sovereign gold bond scheme in detail:

Features:

Investors under sovereign gold bond scheme will get a piece of paper which will hold the same value as that of physical gold as per the market value of the gold. When someone returns this paper after maturity then he/she will get money which would be equal to the value of gold at that point of time. So it is an alternative investment to physical gold.

Interest rate:

Government of India has fixed the interest rate at 2.75% per annum for the sovereign gold bond scheme.

When is the interest payable?

It would be semi-annually on the initial value of investment.

Benefits of Sovereign Gold Bond Scheme

Can be used as collateral also called as security while taking loans. Since it’s in paper format it does not carry any security problems which is very likely to happen in case of physical gold. However since price of gold bond or physical gold is market linked, there is always a risk of pricing fluctuation.

Till what date can coins be purchased?

Interested individual’s can apply for the bonds from Novermber 05, 2015 to November 20, 2015 (i.e. the subscription will open during this period). And issuance of bond will be on November 26, 2015.

Where to purchase the bonds from?

Reserve Bank of India has designated banks and post office and will notify the same. They will have to deposit cash. Once the scheme matures, money would be paid according to the price of gold at that time. Similarly interest would be paid every year. Bonds will be issued by RBI on behalf of Government of India.

What is the price of sovereign gold bond?

The issue price is Rs 2,684 per gram. i.e. the price of a single bond represents the price of gold per gram.

How many bonds can be purchased by any investor?

Individual’s can purchase bonds which equals 2 grams of gold. So overall pricing will be nearly Rs. 5, 400.

What is the maximum limit for purchasing the bonds?

It is capped to 500 grams per person per year.

What would be the tenure?

Eight year.

Can investor exit prematurely?

Yes, it is possible from 5th year onwards.

Is the interest earned taxable?

Yes, the interest earned on the gold deposit is taxable as per the Income tax act, 1961. Along with this, capital gains tax will also be applicable.

Who can purchase ?

The bond can be purchased by Indian residents which include individuals, hindu undivided families, trusts, universities and charitable institutions.sovereign gold bond. Also the bond can be transferred to other persons and can also be purchased for minor children.

Is it a secured scheme?

Yes. Since the bond will be issued by reserve bank of India on the behalf of Indian government there is absolutely no risk involved and assurance of payment. Also it is safe compared to physical gold which requires storage and there is cost involved for the same. Most importantly, it can be held in demat form which further eliminates the risk of losing the scrip.

How will government benefit by issuing the bond?

India being amongst the top three country relying heavily on importing physical gold due to higher demand which increases the import bill. Issuance of this bond will help in reducing the physical demand for the gold and reduce the import bill which in turn will help in strengthening India’s economic strength.

Also read about the earlier launched successful schemes by the prime minister:

And with the launch of these new investment schemes, it is expected to further benefit Indian citizens.

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