Know about Launching of Sovereign Gold Bond (SGB)

What is Sovereign Gold Bond (SGB) ? 
Union Government in its Union Budget 2015-16 had announced introduction of Sovereign Gold Bonds (SGB) Scheme to cut down on the demand for metal gold in our country, which is primarily met through imports. SGB Scheme shall help maintaining the country's Current Account Deficit (CAD) within sustainable levels and is also expected to provide an alternative and attractive investment option to retail individuals.

The SGB will be issued by Reserve Bank of India (RBI) on behalf of the Government of India in tranches.The banks and post offices will be distributing the bonds through their branch network.

The first tranche is to being opened on 05 November 2015 and shall close on 20 November 2015. The issue can be closed by Government of India earlier than November 20, 2015 with a prior notice. The issue price for this first tranche has been announced by RBI at Rs. 2684.00 per unit of gold.

Details of Sovereign Gold Bond (SGB)
Issuance: To be issued by Reserve Bank India on behalf of the Government of India.

Eligibility: The Bonds under this Scheme may be held by a person resident in India, being an individual, in his capacity as such individual, or on behalf of minor child, or jointly with any other individual. "Person resident in India" is defined under section 2 (v) read with section (u) of the Foreign Exchange Management Act, 1999.

Accordingly, The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, Trusts, Universities, charitable institutions

Denomination: The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.

Tenor: 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.

Minimum size: Minimum permissible investment will be 2 units (i.e. 2 grams of gold).

Maximum limit: The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). A self-declaration to this effect will be obtained.

Joint holder: In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

Frequency: The Bonds will be issued in tranches. Each tranche will be kept open for a period to be notified. The issuance date and price will be specified from time to time.

Issue price: Price of Bond will be fixed in Indian Rupees 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 option: Payment for the Bonds will be through electronic funds transfer/cash payment/ cheque / demand draft.

Issuance Form: Government of India Stock under GS Act, 2006. The investors will be issued a Stock/ Holding Certificate. The Bonds are eligible for conversion into de-mat form. The Stock / holding Certificate shall be issued by RBI.

Redemption price: The redemption price will be in Indian Rupees based on previous week's (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.

Sales channel:Bonds will be sold through banks and designated Post Offices, as may be notified, either directly or through agents.

Interest rate: The investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment.

Collateral: 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.

KYC Documentation: Know-your-customer (KYC) norms will be the same as that for Documentat purchase of physical gold. KYC documents such as Voter ID, Aadhaar card / PAN on TAN / Passport will be required.

Tax Treatment: 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.

Tradability: Bonds will be tradable on exchanges/NDS-OM from a date to be notified by RBI.

SLR eligibility:The Bonds will be eligible for Statutory Liquidity Ratio.

Commission: Commission for distribution shall be paid at the rate of 1% of the subscription amount.

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