The amount realised through the 4th tranche, at around ₹ 919 Crores, is the highest achieved as yet

In pursuance of the announcement in Union Budget 2015-16, Sovereign Gold Bond (SGB) scheme was launched as an alternative to physical gold in Nov 2015. The aim of SGB is to reduce demand, including through imports, for physical gold, and in process reduce India’s Current Account Deficit (CAD). Three tranches of SGB scheme were floated in 2015-16. This financial year too from July 18-22, 2016, the GOI, in consultation with RBI, launched the 4th Tranche of SGB.

To improve attractiveness of SGB, new product features were introduced this time. The minimum subscription limit was reduced from 2 gm to 1 gm. The Capital gain tax arising on redemption of SGB to an individual was exempted, in line with the Budget 2016-17 announcement. This exemption was also extended to last 3 tranches too. The applications were allowed to be routed online and SGB was issued in Demat/ paper form. National Stock Exchange and Bombay Stock Exchange were notified as additional receiving offices. Trading of Gold Bonds was also operationalised.

The issue price of the Sovereign Gold Bond in 4th tranche was fixed at ₹ 3,119 per gram of gold based on the basis of simple average of closing price of gold of 999 purity for the week July 11 to 15, 2016 as published by the India Bullion and Jewellers Association Ltd. (IBJA). The amount realised through the 4th tranche, at around ₹ 919 Crores, is the highest achieved as yet. The previous highest was ₹ 746 Crores in the 2nd tranche when the issue price was only ₹ 2600 per gram of gold. This was mobilised through over 1.95 lakh applications representing around 2.95 tonnes of gold. These numbers are likely to go up further as the receiving offices are keying in the information of huge rush of applications received on the last day. The top 5 among the receiving offices were SBI, NSE, Bank of India, ICICI Bank and HDFC Bank, in that order. The total subscription in first 3 tranches was ₹ 1318 Crores corresponding to 4.9 tonnes of gold.

The encouraging response of the investors to the SGB Scheme (Series-I) of 2016-17, indicates that the product has come of age, and is becoming popular amongst the general public due to advantages it offers over physical gold, namely use as collateral for loans, Capital Gain Tax exemption on redemption, Zero risk of theft/ impurities associated with handling of physical gold; tradability through Stock Exchanges and also availability in DEMAT and paper form. The product, in addition, earns an interest rate of 2.75% per annum, payable half yearly on initial investment. Besides, the aggressive marketing of the product by GoI, including through its receiving offices, namely Banks, NSE and BSE helped in mobilizing a record high amount. Seeing the investors response, the Government will come up with more tranches in 2016-17.

Capital gain tax exemption increases demand for sovereign gold bonds and enhances tradability and investor appeal. Sovereign Gold Bond Series-I fourth tranche introduced product enhancements - minimum subscription reduced to 1 gram, online applications, Demat/paper issuance, operational trading on exchanges, additional receiving offices, and half-yearly interest - and applied a Capital Gain Tax exemption on redemption for individuals; the issue price was determined by the simple average closing price of specified gold purity over a stated week, leading to record mobilisation and prompting further tranches.