Sovereign Gold Bond (2016-17 Series I)- Features & Benefits

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Salient Features:Sovereign Gold Bond 4th Tranche Financial Year 2016-17 (Series-I)


Government of India recently launched the much awaited 4th Tranche of Sovereign Gold Bond Scheme, FY 2016-2017 (Series-I). Subscription date for the 4th Tranche has been fixed from 18th-22nd July, 2016 and the Bonds shall be issued on the 5th August, 2016.

So, the subscription is open till 22 July, 2016.  This time, price for bond has been fixed at Rs 3,119 per gram of gold.

The Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and recognised stock exchanges viz., NSE and BSE.

What is Sovereign Gold Bond (SGB)?


SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors subscribe or buy gold bond instead of buying 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 Reserve Bank on behalf of Government of India.

What is Sovereign Gold Bond (SGB) Schemes?


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.

Three tranches of SGB issuance have been undertaken during 2015-16.

During the first tranche of SGB issued in November 2015, 62,169 applications were accepted for a total subscription of 915.95 Kgs gold amounting to Rs.246.20 crore.

In the second tranche (18 to 22 Jan, 2016), approx. 3.16 lakh applications were accepted for a total subscription of 2,872.3 kg of gold amounting to Rs.746.80 crore.

The third tranche of the sovereign gold bond, which was launched on 8 March, 2016, received a total subscription for 1,128 kg gold, amounting to Rs.329 crore. There were around 64,000 applicants.

So, the government of india had so far received subscription for Rs.4,916.253 kg of gold amounting to about Rs.1,322 crore.

Key Features: Sovereign Gold Bonds (SGBs) 4th Tranche


Product Name of Fourth tranche of SGB:  Sovereign Gold Bond 2016-17 – Series I

Issue Price: Issue price for the 4th tranche of SGB is Rs 3,119 per gram of gold.

Eligible Applicant (who can apply): Indian entities including individuals, HUFs, Trusts, Universities and Charitable Institutions.

Minimum Subscription: Minimum subscription for 4th Tranche of SGB’s is one gram. The minimum subscription limit has been to reduce from 2 gram to 1 gram with an intention to enlarge the subscriber base.

Maximum Subscription: Maximum subscription for 4th Tranche of SGB’s is 500 grams.  Here, it is to be noted that, in case of joint holding, the maximum subscription limit of 500 grams will be applied to the first applicant only.

Tenor of the Bond: The tenor of the bond is fixed for a minimum of 8 years with option to exit from 5th years.

Form of issue of Gold Bonds:

4th Tranche of Sovereign Gold Bonds is available both in De-mat and paper form.  In previous three tranche of Sovereign Gold Bonds scheme, bonds were available in certificate of holding i.e., in paper form only.

Sales channel:

The Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), selected post offices and recognised stock exchanges viz., NSE and BSE.

Payment option:

Payment for the Bonds will be done through cash payment (upto a maximum of Rs. 20,000) or dd or cheque or electronic banking.

Collateral Benefits: Bonds can be used as collateral for loans.

Tradability:

Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

Trading of Gold Bonds has been operationalized and for further smoothening of this facility NSE and BSEs is inducted in the list of receiving offices.

Interest rate on SGB:

The investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually (every six month) on the initial value of investment.

Tax Benefits – SGB

Interest income

The interest on the Gold Bond shall be taxable as per the provisions of the Income tax Act, 1961 (43 of 1961) and the capital gains tax shall also remain the same as in the case of physical gold.

Capital Gain on Redemption

In the 4th Tranche of SGB – F.Y 2016-2017 (Series I), capital gain tax arising on redemption of SGB to an individual has been exempted.

Here, it is to be noted that, indexation benefit will be available on long term capital gain (LTCG) arising to any person on transfer of bonds.

Thus, indexation benefits if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption will be available.

KYC Documentation for SGB

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

Redemption price of SGB

The redemption price will be in Indian Rupees based on previous week’s (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.

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