About A Sovereign Gold Bond Scheme (SGB)

Context:

The Reserve Bank of India (RBI) recently announced the issue price for the upcoming Sovereign Gold Bond (SGB) Tranche 2.

Relevance:

GS II- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Dimensions of the Article:

1. About Sovereign Gold Bond Scheme (SGB)
2. Benefits of Sovereign Gold Bond

About Sovereign Gold Bond Scheme (SGB)

• The Sovereign Gold Bond Scheme was introduced in the Union Budget 2015-16 by the Union Cabinet which was chaired by PM Narendra Modi.
• It was launched to reduce the demand for physical gold and with an aim to invest a part of these physicals gold bars and coins that are purchased every year into financial savings in the form of gold bonds.
• Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
• The Bond is issued by Reserve Bank on behalf of Government of India.
• Government introduced these bonds to help reduce India’s over dependence on gold imports.
• The move was also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing.
• The bonds will be restricted for sale to resident Indian entities, including individuals, Hindu Undivided Family (HUFs), trusts, universities and charitable institutions.
• The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
• The tenor will be for a period of 8 years with exit option from the 5th year to be exercised on the interest payment dates.
• The minimum permissible investment limit will be 1 gram of gold, while the maximum limit will be 4 kg for individual, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal (April-March) notified by the government from time to time.
• In case of joint holding, the investment limit of 4 kg will be applied to the first applicant only.
• 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.

Benefits of Sovereign Gold Bond

• As a low-risk investment, it is perfect for investors with low-risk appetite.
• Compared to physical gold, the cost to purchase or sell SGBs is quite low.
• The expense of buying or selling the SGB is also nominal in comparison to the physical gold.
• The gold bonds can be availed either in paper or in demat form as per the convenience of an individual.
• The gold bonds invested by the Investors can be gifted or transferred to others who are eligible under the scheme.
• They can also trade these bonds on stock exchanges subject to notifications of the Reserve Bank of India.
• These Gold bonds can be purchased through multiple payment modes such as cheques, cash, DDs or electronic transfer.