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Sovereign Gold Bond Scheme

Focus: GS II- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Why in News?

Recently the Finance Ministry said that the Sovereign Gold Bonds (SGBs) 2022-23-Series III will open for subscription during the December 19-December 23 period and the 2022-23-Series IV during March 06-10, 2023.

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.

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