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Sovereign Gold Bonds: Public Issues During Apr-Sept'20

Government of India, in consultation with the Reserve Bank of India, has announced the calendar for six Public Issues of Sovereign Gold Bonds (SGB) for the first half of the Financial Year 2020-21.

There will be one public issue of SGB every month starting from Apr'20 to Sept'20.

The first issue is scheduled from April 20th to 24th.

Salient features of these public issues of SGBs are detailed below:

Product Name: Sovereign Gold Bond 2020-21 – Series I/II/III/IV/V/VI.

Eligible Investors: Only for the resident Indian entities (individuals - singly, jointly or on behalf of minor, HUFs, trusts, universities, charitable institutions, etc.). NRIs cannot invest in these bonds.

Application acceptance dates:
1. 2020-21 Series I: Apr 20-24 (Bonds to be issued on Apr 28'20)
2. 2020-21 Series II: May 11-15 (Bonds to be issued on May 19'20)
3. 2020-21 Series III: Jun 8-12 (Bonds to be issued on Jun 16'20)
4. 2020-21 Series IV: Jul 6-10 (Bonds to be issued on Jul 14'20)
5. 2020-21 Series V: Aug 3-7 (Bonds to be issued on Aug 11'20)
6. 2020-21 Series VI: Aug 31-Sept 4 (Bonds to be issued on Sept 8'20)

(Note: The Central Government may close the Scheme at any time before the period specified above with prior notice.)

Pricing Formula: Nominal Value based on the simple average closing price of gold — of 999 purity — as per India Bullion and Jewellers Association Ltd. (IBJA), during the last three business days of the previous week.

Important: For investors applying online and paying through the digital mode, the net price applicable will be after considering a discount of Rs.50 on the nominal value.

Pricing for Series I: Rs.4639 per gram (based on average closing price during Apr 15 to 17'20)

[* Rs.4589 for investors applying online and paying through the digital mode]

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

Investment limit (per financial year): Minimum 1 gram. The Maximum limit is 4 kgs for individuals / HUFs, and 20 kgs for trusts, etc. This is based on self-declaration and includes bonds purchased under different series, tranches and also the Secondary Market.

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. It can also be converted into demat form. 

Joint holding: Permitted (maximum investment limit of 4 kgs applies to the first applicant only)

Redemption pricing: Based on the simple average closing price of gold, of 999 purity, during the last three business days of the previous week, 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. This, however, is subject to the decision of the bank or financing agency and not a matter of right for the bondholder.

Nomination: Permitted. (If the nominee is an NRI, s/he will have to hold the bonds till maturity and the maturity proceeds including interest will be non-repatriable.)

Transferability / Trading: Permitted

Liquidity: SGBs would be traded on the stock exchanges.

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

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.

By the way: You don't have to wait for a Public Issue to invest in Sovereign Gold Bonds. You can buy them any time from the secondary market. The advantage of this is that
(i) you don't have to keep your funds idle and
(ii) more importantly, you could get the same at a discount thus increasing your total gains from the investment.

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 (+5% GST on making charges); 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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