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Sovereign Gold Bonds 2017-18 – Series II : Issue Opens Today

Reserve Bank of India has announced the second Public Issue of the Sovereign Gold Bonds, for the Financial Year 2017-18.

As explained in an earlier blog post Buy Sovereign Gold Bonds Any Day You Wish To, such bonds are always available for purchase in the secondary market. You don't have to really wait for a public issue to invest.

However, some people don't understand that it is immaterial whether you buy such Gold Bonds from the primary or the secondary market. And, some are reluctant to adopt the new technology.

Hence, for them the Primary Market remains the primary mode of investment.

Accordingly, for the benefit of such investors (and others too), the salient features of the latest issue of Sovereign Gold Bonds are detailed below:

Product Name: Sovereign Gold Bond 2017-18 – Series II.

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

Application acceptance dates: July 10 to 14, 2017 (Bonds will be issued on July 28, 2017)

Pricing: Rs.2780 per gram of gold [Nominal Value Rs.2830 per gram Less Discount of Rs.50]

[Nominal Value is based on previous week’s (i.e. July 3 to 7, 2017) average closing price of gold — of 999 purity — as per India Bullion and Jewellers Association Ltd. (IBJA). The Govt. is offering a discount of Rs.50 on the nominal value.]

Interest rate: @2.50% p.a. (payable semi-annually) on the initial value of your investment

[IMPORTANT: Starting with the Series III Bond for 2016-17, the Govt. has LOWERED the interest rate by 0.25% to 2.50% p.a. Prior to that, the Sovereign Gold Bonds were issued @2.75% p.a. interest rate.]

Smile. 2nd public issue of Sovereign Gold Bonds for 2017-18 is announced.

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

Tenor: These bonds mature after eight years from the date of issue (with an early exit option from the 5th year onward, on the interest payment dates only).

Where to buy: Scheduled Commercial Banks, Designated Post Offices, National Stock Exchange of India / Bombay Stock Exchange and Stock Holding Corporation of India (either directly or thru' agents)

Issuer: Reserve Bank of India on behalf of the Government of India

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 of Rs.500 gms 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 (only for individual investors)
(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 mandated by RBI on the 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.

There are certain important aspects to investing in gold in general, and in Sovereign Gold Bonds in particular. Regular readers of my blog would be well aware of the same. However, for the benefit of the new readers, the same are listed below:

a. The best option for "investing" in gold is undoubtedly the Sovereign Gold Bond.
b. As an alternative, you can also consider Gold ETF (Exchange Traded Fund).
c. However, gold jewellery as an investment is an absolute blunder.
d. On the parameters Price, Purity and Protection, Sovereign Gold Bonds and Gold ETFs are far (far) superior to jewellery.
e. Now pay 3% GST on physical gold; none on Gold Bonds
f. Due to Govt's nepotism, Sovereign Gold Bonds are a better choice as compared to Gold ETFs.
g. As many financial advisors (including me) have often warned, invest only a token amount in gold. Don't let your portfolio become too heavy on gold (and property).
h. Leave 'ample' room for financial assets (more particularly the mutual funds).

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