01 Nov, 2015 12:22 PM

All you need to know about the sovereign gold bond

For those who prefer investment in Gold, Sovereign gold bonds that will be linked to the price of gold is a better option. The bonds will be issued on behalf of government by RBI. The idea is to reduce the demand for physical gold. The borrowing through issuance of the bond will form part of market borrowing programme of government.

Here are some of the highlights.

The applications for the gold bonds will be accepted from November 05, 2015 to November 20, 2015 and the bonds will be issued on November 26, 2015.
The bonds will earn an interest rate of 2.75 % PA payable semi-annually on the initial value of investment. However the interest on gold bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961) and the capital gains tax shall also remain same as in the case of physical gold.
Only resident Indian entities including individuals, HUFs, trusts, Universities, charitable institutions can own the bonds.
Bonds will be sold through banks and designated post offices, as may be notified, either directly or through agents.
Bonds will be of denominations of multiples of grams of gold with a basic unit of 1 gram with minimum permissible investment of 2 grams value. Maximum amount will be limited by 500 grams per person per fiscal year (April-March). In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only. The bonds will be issued in tranches. Each tranche will be kept open for a period to be notified.
Price of bond will be fixed in Indian currency on the basis of the previous week’s (Monday–Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA). Payment for the bonds will be through electronic funds transfer/cash payment/ cheque/ demand draft.
The tenor of the bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.
The bonds are eligible for conversion into de-mat form.
Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
Bonds will be tradable on exchanges/NDS-OM from a date to be notified by RBI.
The Bonds will be eligible for Statutory Liquidity Ratio.
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.