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9-day Window To Invest In Sovereign Gold Bonds

Sovereign Gold Bonds are again available for investment. The Public Issue of its 5th Tranche is now open.

As mentioned in the past also, this is the Govt's initiative to encourage people to switch from "physical" to "financial" gold.

These Gold Bonds are a double bonanza.

One, it gives the Indian investors a much better alternative to invest in gold.

Two, it curtails India's current account deficit, by reducing its dependence on the imported gold. This is good for the Indian economy; which, in turn, is good for its people too.

So let me quickly recap the salient features of the latest issue of the Sovereign Gold Bonds; to be issued by the Reserve Bank of India on behalf of the Government of India.

Product Name: This 5th tranche is designated as Sovereign Gold Bond 2016-17 – Series II.

Eligible Investors: Only for the resident Indian entities (individuals, HUFs, trusts, universities, charitable institutions, etc.)

Application acceptance dates: Sept 1 to 9, 2016 (Bonds will be issued on Sept 23, 2016)

Pricing: Rs.3150 per gram of gold
[This is based on previous week’s (i.e. Aug 22 to 26, 2016) average closing price of gold, of 999 purity, as per India Bullion and Jewellers Association Ltd. (IBJA)]

Interest rate: 2.75% p.a. (payable semi-annually) on the initial value of your investment

Investment limit: Minimum 1 gram and Maximum 500 grams per person per financial year (based on self-declaration)

Tenor: These are 8-year bonds (with an early exit option from the 5th year onward, on the interest payment dates only)

Where to buy: Banks, Designated Post Offices, NSE / BSE and Stock Holding Corporation of India (either directly or thru' agents)

Before you proceed further, do read Gold Bond or Gold ETF... Which option wins?

Have you been eagerly waiting for the next public issue of Sovereign Gold Bonds?

Denomination: In multiples of gram(s) of gold, with a basic unit of 1 gram

Mode of Payment: Demand Draft, Cheque or Electronic Banking (and also cash up to Rs.20,000 only)

Form: Govt. of India Stock Certificate. Can also be converted into demat form. 

Joint holding: Permitted (maximum investment limit applies to the first applicant only)

Redemption pricing: Based on the previous week’s (Mon to Fri) average closing price of gold, of 999 purity, as per India Bullion and Jewellers Association Ltd. (IBJA)

(a) Interest income is taxable as per IT Act 
(b) Capital Gains on redemption (when the Bonds are held till maturity) is exempt from tax 
(c) Capital Gains on transfer (when the Bonds are sold in the secondary market) is eligible for indexation benefit, if the holding period exceeds 3 years.

Collateral: Allowed as collateral for loans; with the same Loan-to-Value ratio as physical gold

KYC:  Voter ID, Aadhaar card/PAN or TAN /Passport i.e. same as for purchase of physical gold

Liquidity: Would be traded on the stock exchanges and RBI's NDS-OM (Negotiated Dealing System-Order Matching Segment)

Commission: 1% of the subscription amount shall be paid to the receiving offices, who shall share at least 50% of the same with the agents procuring the business.

Before I conclude, I once again repeat my warning on investing in gold:
... Don't "invest" in physical gold
... Bonds give you EXTRA interest income that jewellery, bars or coins don't
... They are lot safer than physical gold
... No risk of impurity and no (wasteful) making charges
... Buying bonds reduce import of gold; which benefit both the economy and you
... Don't go overboard with investment in gold; there are better investments that you mustn't ignore.

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