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Sovereign Gold Bonds: 20 Must Know Features Before Investing


The Government of India has decided to issue Sovereign Gold Bonds on November 26, 2015. The application for the same will be accepted from November 05, 2015 to November 20, 2015.

Individuals can buy Sovereign Gold Bonds through banks and designated post offices.

The main aim of the government to launch gold bonds is to reduce investors interest from buying coins and gold bars.

Sovereign Gold Bonds: Should You Invest In It?

Sovereign Gold Bonds: 20 Must Know Features Before Investing

20 Must Know features to consider before investing

No. Features Details
1 Product name Sovereign Gold Bond
2 Eligibility The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities, charitable institutions.
3 Denomination The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
4 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.
5 Minimum size Minimum permissible investment will be 2 units (i.e. 2 grams of gold).
6 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.
7 Joint holder In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.
8 Frequency The Bonds will be issued in tranches. Each tranche will be kept open for a period to be notified. The issuance date will also be specified in the notification.
9 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).
10 Payment option Payment for the Bonds will be through electronic funds transfer/cash payment/ cheque/ demand draft.
11 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 demat form.
12 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.
13 Sales channel Bonds will be sold through banks and designated Post Offices, as may be notified, either directly or through agents.
14 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.
15 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.
16 KYC Documentation Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
17 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.
18 Tradability Bonds will be tradable on exchanges/NDS-OM from a date to be notified by RBI.
19 SLR eligibility The Bonds will be eligible for Statutory Liquidity Ratio.
20 Commission Commission for distribution shall be paid at the rate of 1% of the subscription amount.

Risk Involved


Investors should note that upside gains and downside risks will be borne by investor and should be aware of the volatility in gold prices. As the bonds track the gold prices and at the moment gold trending upwards is difficult. For now, gold rates are tracking the US Federal Reserve on interest rate hike.

If the US Fed hikes interest rates as widely expected in its policy meet later this month, gold prices would fall.

Read more about: sovereign gold bonds
Story first published: Saturday, October 31, 2015, 11:22 [IST]
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