Govt to issue sovereign gold bonds at 2.50%; key points to note

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The Government of India will issue sovereign gold bonds (SGBs) in six tranches - from April 2020 to September 2020 - to domestic investors, a press release by the Reserve Bank of India (RBI) said on April 14.

The bonds will be offered at a fixed rate of interest of 2.50 percent per annum payable semi-annually on the nominal value.

The subscription dates for the first tranche is April 20-24 while the dates for the last tranche is August 31-September 04, the press release said.

Restricted for sale to resident individuals, 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 RBI release said.

While the minimum permissible investment will be 1 gram of gold, the maximum limit of subscription shall 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, the press release said. In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only

The annual ceiling will include bonds subscribed under different tranches during initial issuance by the government and those purchased from the secondary market, RBI said.

The tenor of the bond will be for a period of 8 years with an exit option after the 5th year to be exercised on the interest payment dates.

The issue price of the gold bonds will be Rs 50 per gram less for those who subscribe online and pay through digital mode, while the payment for the bonds will be through cash payment (up to a maximum of Rs 20,000) or demand draft or cheque or electronic banking, said the press release.

Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices (as may be notified) and recognised stock exchanges such as the National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.

As per the press release, bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI. The interest on gold bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961).

RBI defines SGBs as government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bond is issued by RBI on behalf of the Government of India.