Next tranche of sovereign gold bonds opens: Here's all you need to know

The Sovereign Gold Bond Scheme 2017-18 - Series II issue has opened for subscription on Monday. The issue price for this tranche is fixed at Rs 2,780 per gram of gold.

"The nominal value of the bond based on the simple average closing price (published by the India Bullion and Jewellers Association) for gold of 999 purity of the week preceding the subscription period, i.e. July 03-07, 2017 works out to Rs 2830 per gram. Government of India, in consultation with the Reserve Bank of India, has decided to offer a discount of Rs 50 per gram on the nominal value of the Sovereign Gold Bond," the RBI explained the fixation of issue price.

The bond issue will close on July 14. The Government of India may, with prior notice, close the Scheme before the specified period, the RBI said.

The bonds, which will be issued on July 28, will be sold through banks, Stock Holding Corporation of India (SHCIL), designated post offices, and recognised Stock Exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange.

The Sovereign Gold Bond scheme was launched in November 2015 with an objective to reduce the demand for physical gold and shift a part of the domestic savings, used for purchase of gold, into financial savings. India imports around 1,000 tonnes of gold every year, resulting in large-scale foreign exchange outflows.

The first issue had offered bond holders an annual interest rate of 2.75 percent. The government has garnered Rs 5,400 crore till date through issue of eighth tranches of sovereign gold bonds.

The government has provided an option of holding gold bonds in physical or dematerialised form.

Here are 10 important factors that you should know before subscribing the issue:-

Interest rate

The investors will get interest at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value. The last interest will be payable on maturity along with the principal.

Denomination

The bonds will be denominated in units of one gram of gold and multiples thereof.

Minimum investment in the bonds will be one gram with a maximum limit of subscription of 500 grams per person per fiscal year (April–March). A self-declaration to this effect will be obtained, the RBI said.

In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

Eligibility

The bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, universities and charitable institutions.

Tenor

The tenor of the bond will be for a period of 8 years (from July 28 - the date of issue of gold bonds).

Pre-mature redemption (exit option) of the bond is permitted from fifth year of the date of issue on the interest payment dates.

The receiving office will inform the investor of the date of maturity of the bond one month before its maturity.

Payment option

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.

Where payment is made through cheque or demand draft, the same will be drawn in favour of the receiving office (Scheduled commercial banks (excluding RRBs), designated post offices, Stock Holding Corporation of India and recognized stock exchanges viz., National Stock Exchange of India and Bombay Stock Exchange).

Collateral

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.

Tax Treatment

The interest on gold bonds will be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of Sovereign Gold Bond to an individual has been exempted.

The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.

Tradability

Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

SLR Eligibility

The investment in bonds will be eligible for statutory liquidity ratio purpose.

KYC Documentation

Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.