Image source- https://www.goodreturns.in/gold-rates/#Weekly+%26+Monthly+Graph+of+Gold+Price+in+India
The graph above displays the recent trend in the price of Gold India witnessed since Honorable Prime Minister of India, Shri Narendra Modiji announced complete lockdown in India from 24th March, 2020 in order to tackle the menace caused by the rapidly spreading COVID-19. With industries shutting down and a pause on all the non-essential economic activities Gold prices started witnessing an upward trend. There are many factors both domestic and international that affect the Gold prices in India.
Encouraged by such a trend Government has decided to raise funds by issuing SOVEREIGN GOLD BOND (SGB). The Reserve Bank of India on 13th of April, 2020 announced that it would launch SGB Scheme (2020-21) on behalf of Government of India in six tranches starting 20th April, 2020 as depicted below-
|S. No.||Tranche||Date of Subscription||Date of Issuance|
|1.||2020-21 Series I||April 20-24, 2020||April 28, 2020|
|2.||2020-21 Series II||May 11-15, 2020||May 19, 2020|
|3.||2020-21 Series III||June 08-12, 2020||June 16, 2020|
|4.||2020-21 Series IV||July 06-10, 2020||July 14, 2020|
|5.||2020-21 Series V||August 03-07, 2020||August 11, 2020|
|6.||2020-21 Series VI||Aug.31-Sept.04, 2020||September 08, 2020|
SGB Scheme is a very easy to understand concept. RBI has defined it as the denomination of government issued securities in grams of gold. It means holder of SGB security need not purchase gold in its physical form but he/she may still hold the possession of corresponding quantity of gold as certified by the RBI in the SGB issue certificate. The person purchasing the bond need to pay the cash to get the bond issued which can be redeemed upon maturity and/ or as per the clause defined in the particular bond.
The very 1st SGB in India was launched in November, 2015.
Following are the key takeaways from this scheme-
- It is a safer and lesser expensive option as cost related to security, making and storage of physical gold is eliminated.
- Uncertainty pertaining to purity of the metal is disregarded.
- The SGB Bond can be traded on demat account as well.
- Following are eligible for the scheme- individuals, HUFs, trusts, universities and charitable institutions. Joint holding is also allowed.
- The main advantage under this scheme is that it can be issued to a guardian on behalf of a minor provided he/ she fulfills the eligibility under persons resident in India as defined under Foreign Exchange Management Act, 1999 as described above.
- An investor is supposed to have a unique investor ID, meaning the investor can not by any means apply for bonds under 2 different entity with his/ her testimonial i.e. PAN card.
- Minimum and maximum limit has been set for a particular financial year as mentioned below-
- Individual- [1gm, 4000gm]
- Hindu Undivided Family (HUF)- [1gm, 4000gm]
- Trust- [1gm, 20000gm]
- In case of joint holding, the limit shall apply to the 1st holding.
- Interest rate for the bond has been fixed at 2.5% per annum which shall be paid semi-annually.
- SGB can be purchased from the agencies authorized by RBI- offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorized stock exchanges
- Maturity period for the bond is 8 years. However, there is an option take an exit from the bond from the onset of 5th year from the date of issue of the bond.
- The price of gold for the relevant tranche will be published on RBI website two days before the issue opens.
- Another advantage is that this is the safest investment option as upon maturity we are paid both the principle amount amounting to the nominal value of Gold at that particular time along with the interest.
- The capital gains tax arising on redemption of SGB to an individual has been exempted. And same can be used as a collateral to secure loans from banks.
Thus, investing in SGB is a very secure option as it is evident that if one invests today for sure the price would definitely be higher in the 5th year from now.
For more detailed understanding, I will encourage the readers to please visit the official notification issued by the RBI at-