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Gold Bonds

All About Gold Sovereign Bonds

What is Gold Bond?

Gold investments can be done in two broad ways. One, you can either buy physical gold or you can choose the paper gold option. Gold bonds belong to the latter type.

Gold bonds are paper gold in the form of bonds that are issued by RBI (Reserve Bank of India). This is done by the RBI on behalf of the Government of India. These are Government securities in multiple gram denominations of gold. Gold bonds behave like stocks in share market and are a replacement to physical gold, because of which they can only be bought through a broker authorised by SEBI (Securities and Exchange Board of India).

There is only one type of gold bond and that is the Sovereign Gold Bond.

Features and Benefits of Gold Bonds

  • Gold bonds have an interest attached to them which is credited semi-annually to the investor’s account and the principal is payable with the last interest on the maturity of the bond.
  • The interest rate earned is of 2.50% per annum on the nominal value.
  • It is in the demat form and requires a demat account.
  • The buying and selling of these bonds happens on NSE (National Stock Exchange of India Limited). There are additional charges applied for intermediaries- stock brokers.
  • The minimum investment to be done is of 1 gram and the maximum is of 4 kgs for an individual and HUFs (Hindu Undivided Family). For trusts and similar entities, it is of 20 kgs per fiscal.
  • Tax exemption is applicable and indexation benefits are provided to long term capital gain that arises on the transfer of bond, to any person.
  • The bonds are easily tradeable within a fortnight of issuance on the date specified by the RBI.
  • Sovereign gold bonds provide a sovereign guarantee on redemption amount and on the interest.

  • These investments help earn with returns on the basis of gold prices. The long term capital gain is applied after 3 years to the investment.

  • Insurance is provided through the trading members of National Stock Exchange.

How are Gold Bonds of Value?

There are many advantages to procuring gold bonds. Listed below are a few of them:

  • Absence of physical gold makes it a much safer option. This is because of the reduced responsibility of safeguarding physical gold.
  • An assured interest of 2.50% per annum is earned on the issue price.
  • One major advantage is the tax benefit. There is no TDS applied on interest Indexation benefit, if the bond is transferred before maturity. On top of that, redemption is exempted of capital gain tax.
  • The differential advantage between physical and paper gold is the assurance of purity at all times for paper gold, as published by IBJA (Indian Bullion and Jewellers Association), the bond’s prices are linked to the price of gold of 24k purity.
  • As specified earlier, there is a sovereign guarantee on both redemption and interest amounts.
  • The tenor is of 8 years until the bond matures, wherein an option is available to redeem from the 5th year onwards on the date of when the interest is payable.
  • The gold bonds are in constant circulation as they have high liquidity, and many old issuance of sovereign gold bonds are present on National Stock Exchange for trading.
  • Gold bonds can sometimes qualify as collateral in case of loans from banks, on discretion of the bank.
  • They have very low storage cost, thereby making them cost efficient.

How to Obtain These Gold Bonds?

  • Investments on gold bonds can be made by applying for these bonds through brokers authorized by SEBI.
  • Investors can even go through other financial advisors of NSE (National Stock Exchange of India Limited) or the Bombay Stock Exchange Limited. Any channels specified by RBI (Reserve Bank of India) can be utilized.
  • The different channels are Stock Holding Corporation of India (SHCIL), some designated post offices among others.

  • These authorized brokers, advisors and other trading members provide the necessary application form. One can also conveniently download it from RBI’s authentic website. The downloaded application can be in demat or physical form.

  • These bonds can be obtained through different scheduled commercial banks. The exceptions to it are the small finance banks and payment banks that do not offer these bonds.

Here are the various scheduled commercial banks that offer sovereign gold bonds.

Kotak Sovereign Gold Bond

Tranche: For the year 2019-20 series IV

The date of subscription: The date of subscription

The date of issuance: 17th September 2019

Features of sovereign gold bonds from Kotak

  • Sovereign gold bonds 2019-20 are issued by RBI on behalf of the government of India, to the residents of India, charitable institutions, HUFs, trusts of India.
  • The basic unit of gold denomination is of 1 gram and all bonds have been denominated in the multiples of gram(s).
  • The tenor bond after investing in a bond is of 8 years. An exit period, if need be, is only after the 5th year. However, this can only be on the dates of interest payment.
  • Investments:
  • Minimum- 1 gram
  • Maximum- 4kgs for individuals and HUFs and joint holdings for the first applicant only, 20kgs for trusts and other specified entities,

  • The annual limit includes all bonds that have been subscribed during the first issuance by the Government under various tranches as well as those that have been bought from the Exchange or the Secondary Market.

  • The issue price is based on the average closing price for the 24k gold price that is duly published by the Indian Bullion and Jewellers Association Limited on the 3 last working days of the last week, which is just before the end of the period of subscription.
    • It is issued under Government of India Stock under the 2006 GS Act. A Certificate of Holding is issued to the investor for the same.
    • Required documents for Know-your customer or the KYC are:
  • Voter’s Identity Card
  • PAN or Aadhar Card
  • Passport or TAN Number
    • Bonds acquired by the banks would be accounted as a part of the bank’s SLR (Statutory Liquidity Ratio) which is done by the process of either hypothecation or by invoking lien or by taking a pledge alone.

ICICI Sovereign Gold Bond:

ICICI bank offers sovereign gold bonds on an assured interest rate eliminating risk and cost of storage under Sovereign gold bonds scheme by the government.

  • The subscription period for the gold bond: The subscription period is from 9th September- 13th September

  • Issue price on per gram denomination: Issue price: Online- Rs. 3,840 Offline- Rs. 3,890

  • Interest received per annum: Interest per annum is 2.50%

  • The date of gold bond issuance: The date September 17th, 2019

Features and benefits of sovereign gold bonds from ICICI bank

  • Sales of gold bond are restricted to Indian residents; the bonds through ICICI bank online applications can be sold to those who have access to Internet Banking medium and iMobile App.
  • However, for offline applications, ICICI bank offers investors the chance to apply for the tranche with the application forms provided in an ICICI branch.
  • The minimum limit is of 1 gram for all, and the maximum limit is 4 kgs for individuals and HUFs, 20kg for trusts and government notified entities time to time.
  • The interest rate paid to the investors would be on the initial investment amount as notified by The Reserve Bank of India for a particular tranche at its start. It is semi-annually payable.
  • The tenor bond period is of 8 years and there is an exit choice from the 5th year onwards that can be used on the interest payment dates.
  • The redemption price is in Indian rupee denomination and is the simple average which is based on price of closing of gold of 24k purity as established 3 days from the date of payment, as published by the Indian Bullion and Jewellers Association Ltd.

SBI Sovereign Gold Bond

  • Tranche: For the year 2019-20 series IV

  • The date of subscription: From 9th to 13th September, 2019.

  • The date of issuance: 17th September 2019

  • Minimum and maximum subscription: Minimum- 1 gram Maximum- 4 kgs- Individuals and HUFs 20kgs- Trusts etc.

Features of sovereign gold bonds from SBI bank

  • All branches of SBI (State Bank of India) are authorized to accept the subscriptions.
  • Bonds are to be purchased using Indian rupees, and through cash payments (with a maximum of Rs. 20,000). It can also be done through cheque payment or a demand draft payment or even through any mode of electronic payment.
  • The gold bond is then issued as Government of India Stocks under Government Security Act, 2006.
  • After subscribing for a gold bond, investors are issued with a Holding Certificate for the same. They can be converted to the demat form.
  • The SGB can also be utilised as collateral at SBI bank’s discretion.

HDFC Sovereign Gold Bond

HDFC bank offers Sovereign gold bonds, and they term it as - ‘a good way to invest in gold online’. It is convenient as one does not require physical locker to store the gold obtained.

Features sovereign gold bonds from HDFC bank

  • Gold bonds through HDFC bank can be applied for using HDFC bank’s Demat account through their net banking facility.
  • Investors have to mandatorily provide their bank details so as to facilitate payment of interest/maturity value.
  • Issue price of the gold bond is Rs. 3,890 per gram. For those who subscribe online and pay using digital modes, the per gram issuance price is less.
  • The maximum and minimum limits are common across India, irrespective of the issuer. Similarly, fixed interest rate and the tenor of the bond are common too.

Bank of Baroda Gold Bond

  • Tranche series 2019-20: Series IV
  • Subscription date 2019: 9th- 13th September
  • Date of issuance 2019: 17th September
  • Price of issue in 2019: Rs. 3,890/-

Features of sovereign gold bond from Bank of Baroda

  • Gold bond from Bank of Baroda, like other aforementioned banks, is under the supervision of the Government of India. Therefore, all gold bonds have the same features.
  • It is to be noted that the bonds used for loan collaterals are a subject to bank’s decision and not a matter of right by the SGB holder. The Loan-Value ratio applies only to the ordinary gold that has been mandated by the RBI from time to time. Every bank marks a lien on these bonds as well.
  • The transferability of the bond issued as Stock certificate will be according to the provisions and the rules of the 2006 Government Securities Act and the 2007 Government Securities Regulations.

Process of Obtaining and Selling Gold bond

  • Gold bonds can be purchased from enlisted banks in India. To purchase a gold bond, a minimum investment of 1 gram is compulsory.
  • The maximum investment is aforementioned. The annual limit includes all bonds that have been subscribed during the first issuance by the Government under various tranches as well as those that have been bought from the Exchange or the Secondary Market.
  • You need to open a demat account for the same.
  • The prices vary based on online or offline subscription.
  • The trading of bonds on Stock Exchange is eligible within a fortnight of issuance date as specified by RBI.
  • Cancellation of application is allowed till the closure of the issue alone.
  • Each sovereign gold bond comes with a holding certificate which can be printed.
  • One can sell this gold bond through Stock Exchange after the tenor period or maturity.

Conclusion

Sovereign Gold bond Scheme was introduced in India in the year 2005 by the Government under the Gold Monetization Scheme. It is a feasible option in terms of cost effectiveness and easy accessibility. Gold bonds are singularly issued by RBI through the Government of India. Sovereign gold bonds are convenient, as gold bonds come with lesser risk and storage cost than physical gold. This bond is available to all Indian residents and can be purchased with Indian rupees and has a fixed return of 2.50% payable semi-annually. NRI investors are required to hold the sovereign gold bonds till the end of the tenure, i.e. maturity or early redemption and maturity proceeds as well as the interest received on the same is not freely repatriable. Taxes need to be paid as per the Indian tax norms. Their issue prices vary based on various influences on the gold price in the market from year to year.

Irrespective of the issuer, gold bonds carry the same features and benefits. It is safe and considerably secure as it is offered by the Government of India.

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