Gold bonds, a new investment option in India

Gold bonds, a new investment option in India

K.T. Jagannathan

The sixth and final tranche of the Government of India-sponsored Sovereign Gold Bond program has opened for subscription on Monday i.e. August 31.

Under the sixth series of the Sovereign Gold Bond 2020-21, bonds linked to the market price of gold can be purchased at an issue price of ₹ 5,117 per unit. Each unit of the gold bonds, issued by the Reserve Bank of India on behalf of the government, is equivalent to one gram of gold.

The sixth tranche of the gold bond program comes at a time when gold rates have receded about 8 per cent from their all-time highs registered this month.

Subscription under the Sovereign Gold Bond (SGB) 2020-21 program first opened in April this year.

“Government of India, in consultation with the Reserve Bank of India, has decided to offer a discount of ₹50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. For such investors, the issue price of Gold Bond will be ₹ 5,067per gram of gold,” the RBI said.

The bonds are available on all days till Friday i.e. September 4.

Bonds under the SGB scheme have a maturity period of eight years. There is an exit option, though. It is available after five years.

Resident individuals, trusts, universities, and charitable institutions can purchase Sovereign Gold Bonds subject to certain investment limits. Individuals can purchase units equivalent to a minimum of one gram and a maximum of four kilograms in a financial year.

The bonds can be bought from stock exchanges - BSE and NSE- the Stock Holding Corporation, and designated branches of India Post.

An interest rate of 2.5 per cent, payable semi-annually, is applicable to gold bonds. Besides a gold-linked return, investors thus get an additional return on their funds. Though the interest is taxable, the capital gains arising out of redemption are exempted from individual investors.