Th government on Wednesday approved for an introduction of the Sovereign Gold Bonds Scheme, as announced in the Union Budget 2015-16.
This scheme is launched with an aim to reduce the demand for physical gold by shifting a part of it into gold bonds.
Gold Reserve Fund will be created, any changes in gold price will be borne by the fund. The benefit to the Government is in terms of reduction in the cost of borrowing, which will be transferred to the Gold Reserve Fund.
Here are 10 must-know points of you are planning to invest in gold bonds:
1. Sovereign Gold Bonds will be issued when the payment is made in rupees and it will be denominated in grams of gold.
2. Gold bonds will be available both in demat and paper form. These bonds can be easily sold and traded on exchanges if an investors who may so desire.
3. The bond would be restricted for sale to resident Indian entities. The upper limit on bonds that may be bought by an entity would be at a suitable level, not more than 500 grams per person per year will be allowed.
4. The government will issue these bonds and interest rate will also be decided by the government depending on the domestic and international market conditions and may vary from one tranche to another.
5. This rate of interest will be calculated on the value of the gold at the time of investment. The rate could be a floating or a fixed rate, as decided.
6. Financial institutions like banks, NBFCs, Post Offices, National Saving Certificate (NSC) agents and others, as specified, may collect money / redeem bonds on behalf of the government.
7. The tenor of the bond will range from 5 to 7 years so that it would protect investors from medium term volatility in gold prices.
8. Loans can be availed from these gold bonds and can be used as collateral for loans. The Loan to Value ratio is to be set equal to ordinary gold loan mandated by the RBI from time to time.
9. Capital gains tax treatment will be the same as for physical gold for an 'individual' investor.
10. On maturity, the rate of interest on the bonds will be calculated on the value of the gold at the time of investment.
Investors should note that upside gains and downside risks will be borne by investor and should be aware of the volatility in gold prices.