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Sovereign Gold Bonds 2020-21, Subscription to open from August 31

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Subscription under the fifth tranche of the Government’s Sovereign Gold Bond (SGB) 2020-21 program ended on August 11. The subscription window will open once again for five days, from August 31 to September 04. This will be the sixth and last installment of Sovereign Gold Bonds in the current financial year. Issued by the Reserve Bank of India, the value of these bonds is linked to gold’s market price. The gold bonds provide benefits such as an additional annual return of 2.5 percent and a discount on online subscriptions.

Also Read: Gold keeps Shining, crosses 50k Mark to make a Fresh New High

Govt launched the Sovereign Gold Bond Scheme in November 2015 under Gold Monetization Scheme. Under the scheme, the issues are made open for subscription in tranches by RBI in consultation with GOI. RBI Notifies the terms and conditions for the program from time to time. The subscription for SGB will be open as per the following calendar. RBI will declare the rate of SGB before every new tranche by issuing a Press Release.

As per RBI instructions, “Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s)” as the PAN number of the first/ sole applicant is mandatory.

Key points:

  • To be issued by Reserve Bank India on behalf of the Government of India.
  • The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
  • The tenor of the Bond will be for eight years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates.
  • The minimum permissible investment will be 1 gram of gold.
  • The maximum limit of subscribed shall be 4 KG for individual, 4 Kg for HUF, and 20 Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time. A self-declaration of this effect will be obtained. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government, the government, and those purchased from the Secondary Market.
  • In the case of joint holding, the investment limit of 4 KG will only be applied to the first applicant.
  • RBI will issue Press Release stating the issue price of the Bond before the new Issue. The amount of Bond will be fixed in Indian Rupees based on a simple average of the closing price of gold of 999 purity published by the India Bullion and Jewelers Association Limited (IBJA) for the last three business days of the week preceding the subscription period.
  • Payment for the Bonds will be through cash payment (up to a maximum of Rs. 20,000/-) or demand draft, cheque, or electronic banking.
  • The Gold Bonds will be issued as the Government of India Stocks under Government Security Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into the Demat form.
  • The redemption price will be in Indian Rupees based on a simple average of the closing price of gold of 999 purity of the previous three working days published by IBJA.
  • All the branches of the State Bank of India are authorized to accept the subscription.
  • The investors will be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.
  • 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. The lien on the bond shall be marked in the depository by the authorized banks.
    Note: The loan against SGBs would be subject to the bank/financing agency’s decision and cannot be inferred as a matter of right.
  • Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date noted by the RBI.
Sovereign Gold Bond Features

Eligibility:

  • Any resident Indian entity, including HUFs, individuals, Trusts, Universities, and Charitable institutions, can invest in the sovereign gold bond.

Denomination:

  • Bonds are denominated in whole-number multiples of one gram of gold.

Minimum value:

  • The minimum permissible investment in sovereign gold bonds is equivalent to one gram of gold.

Cap on value:

  • Individuals and HUFs can invest in a maximum of 4kg worth of gold bonds. Trusts and other similar entities can invest in up to 20kg value of gold bonds. The Government of India periodically revises the limit.

Interest rate:

  • For each tranche of sovereign gold bonds, the interest rate is declared by RBI. The interest on such bonds is paid semi-annually.

Tenure:

  • Sovereign gold bonds have a tenure of eight years. Investors can exercise an exit option from the fifth year onwards. The exit option can only be used on the day the interest is payable.

Redemption:

  • The redemption price of the sovereign gold bond is equal to the simple average of the closing price of gold of 999 purity of the previous three business days. The price published by the Indian Bullion and Jewelers Association Limits is used for this calculation.

Sovereign Gold Bond Scheme (SGB): Forthcoming Tranches during 2020-21

Sl. No.TrancheDate of SubscriptionDate of Issuance of Bonds
1.SGB 2020-21 Series IApril 20-24, 2020April 28, 2020
2.SGB 2020-21 Series IIMay 11-15, 2020May 19, 2020
3.SGB 2020-21 Series IIIJune 8-12, 2020June 16, 2020
4.SGB 2020-21 Series IJuly 6-10, 2020July 14, 2020
5.SGB 2020-21 Series IAugust 3-7, 2020August 11, 2020
6.SGB 2020-21 Series VIAugust 31- September 4, 2020September 08, 2020

KYC for Gold Bonds

  • Know-your-customer (KYC) norms will be the same as that for the purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN, or TAN /Passport will be required.
  • The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB 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.

Also Read: Beginner’s Guide: Technical Analysis; Support and Resistance Levels

Investors who may miss investing in SGBs, still have a chance as the sixth, and the final tranche of the issue will open from August 31, 2020, till September 04, 2020, and online subscription will get a discount of Rs 50/gm.

Trading tips:

Gold has shown some consolidation as of now after hitting its all-time high, and It is suggested to wait till the correction continues. Once Gold prices are seen taking support will be the ideal time to buy these bonds.

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