Context:
The Reserve Bank of India (RBI) recently announced the issue price for the upcoming Sovereign Gold Bond (SGB) Tranche 2.
Relevance:
GS II- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Dimensions of the Article:
- About Sovereign Gold Bond Scheme (SGB)
- Benefits of Sovereign Gold Bond
About Sovereign Gold Bond Scheme (SGB)
- The Sovereign Gold Bond Scheme was introduced in the Union Budget 2015-16 by the Union Cabinet which was chaired by PM Narendra Modi.
- It was launched to reduce the demand for physical gold and with an aim to invest a part of these physicals gold bars and coins that are purchased every year into financial savings in the form of gold bonds.
- Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
- The Bond is issued by Reserve Bank on behalf of Government of India.
- Government introduced these bonds to help reduce India’s over dependence on gold imports.
- The move was also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing.
- The bonds will be restricted for sale to resident Indian entities, including individuals, Hindu Undivided Family (HUFs), trusts, universities and charitable institutions.
- The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
- The tenor will be for a period of 8 years with exit option from the 5th year to be exercised on the interest payment dates.
- The minimum permissible investment limit will be 1 gram of gold, while the maximum limit will be 4 kg for individual, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal (April-March) notified by the government from time to time.
- In case of joint holding, the investment limit of 4 kg will be applied to the first applicant only.
- 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.
Benefits of Sovereign Gold Bond
- As a low-risk investment, it is perfect for investors with low-risk appetite.
- Compared to physical gold, the cost to purchase or sell SGBs is quite low.
- The expense of buying or selling the SGB is also nominal in comparison to the physical gold.
- The gold bonds can be availed either in paper or in demat form as per the convenience of an individual.
- The gold bonds invested by the Investors can be gifted or transferred to others who are eligible under the scheme.
- They can also trade these bonds on stock exchanges subject to notifications of the Reserve Bank of India.
- These Gold bonds can be purchased through multiple payment modes such as cheques, cash, DDs or electronic transfer.
