The Government of India, in consultation with the Reserve Bank of India, has decided to issue second tranche of Sovereign Gold Bonds. Applications for the bonds will be accepted from January 18, 2016 to January 22, 2016. The Bonds will be issued on February 8, 2016. The Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL) and designated post offices. The borrowing through issuance of the Bond will form part of market borrowing programme of the Government of India.
It may be recalled that Honourable Finance Minister had announced in Union Budget 2015-16 about developing a financial asset, Sovereign Gold Bond, as an alternative to purchasing metal gold. Accordingly, the first tranche was open for subscription from November 05, 2015 to November 20, 2015. The features of the Bond are given below:
Sl. No | Item | Details |
1 | Product name | Sovereign Gold Bond 2016 |
2 | Issuance | To be issued by Reserve Bank India on behalf of the Government of India. |
3 | Eligibility | The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities and charitable institutions. |
4 | Denomination | The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. |
5 | 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. |
6 | Minimum size | Minimum permissible investment will be 2 units (i.e. 2 grams of gold). |
7 | 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. |
8 | Joint holder | In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only. |
9 | 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. |
10 | 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). |
11 | Payment option | Payment for the Bonds will be through cash payment upto a maximum of ₹ 20,000 or demand draft or cheque or electronic banking. |
12 | Issuance form | Government of India Stock under GS Act, 2006. The investors will be issued a Holding Certificate. The Bonds are eligible for conversion into demat form. |
13 | 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. |
14 | Sales channel | Bonds will be sold through banks, SCHIL and designated Post Offices, as may be notified, either directly or through agents. |
15 | 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. |
16 | 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. |
17 | 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. |
18 | 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. |
19 | Tradability | Bonds will be tradable on exchanges/NDS-OM from a date to be notified by RBI. |
20 | SLR eligibility | The Bonds will be eligible for Statutory Liquidity Ratio. |
21 | Commission | Commission for distribution shall be paid at the rate of 1% of the subscription amount. |
Sovereign Gold Bonds issuance establishes investor eligibility, tenure, pricing and tradability rules, with fixed interest and tax treatment. Issuance of Sovereign Gold Bonds sets the issuance framework, investor eligibility and subscription limits, denomination in grams, eight year tenor with exit from year five, pricing and redemption based on IBJA weekly average for 999 purity gold, fixed semi annual interest on initial value, conversion to demat and tradability from a notified date, use as collateral with RBI aligned LTV, KYC as for physical gold, and tax treatment equivalent to physical gold.
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