Sovereign Gold Bond Scheme Current Affairs - 2019

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Centre fixes price for Sovereign Gold Bonds at Rs.3,443 per gram

Government of India has fixed the price at Rs.3,443 per gram for the new series of Sovereign Gold Bonds (SGBs) opening July 8.

Key Highlights

Union Finance Ministry recently announced that Centre in consultation with Reserve Bank of India (RBI) has decided to allow a discount of Rs.50 per gram from issue price to those investors who apply online and payment which is made via digital mode. This implies that for such investors, the issue price of gold bond will be Rs.3,393 per gram of gold.

On 30 may 2019 RBI announced calendar for issuance of SGB for 1st half of current financial year (2019-2020).

The SGB’s will be issued every month from June 2019 to September 2019.

About Sovereign Gold Bond Scheme

It was launched by Government of India in November 2015 with the goal of reducing the demand for physical gold and shifting a part of domestic savings, used for purchase of gold, into financial savings.

Under the SGB scheme, bonds are denominated in units of 1 gram of gold and multiples thereof.

Minimum Investment: in bonds is 1 gram and a maximum limit of subscription of 500 gram/person/fiscal year (April-March).

Maximum Limit: of subscription is 4 kg for an individual and Hindu Undivided Family (HUF) and 20 kg maximum subscription limit for trusts and similar entities per fiscal (April-March).

Annual Ceiling: includes bonds subscribed under different tranches during initial issuance by centre and those purchased from secondary market.

Government launches first tranche of Sovereign gold bonds for FY19

The Union Government (Finance Ministry) in consultation withReserve Bank of India (RBI) has launched first tranche of sovereign gold bonds (SGBs) for current fiscal (FY 2018-19). It will be sold through banks, designated post offices and recognised stock exchanges namely NSE and BSE and Stock Holding Corporation of India Limited (SHCIL).

Background

Households in India hold large amount of their savings as physical assets such as gold, silver and other precious metals and real estate. Gold especially has for long held tremendous attraction both as investment avenue as well as store of value. Indian households and temple trusts are estimated to be holding as much as 22,000 tonnes of gold. The ever increasing demand for gold has been putting serious pressure on import bill of India, impacting growth and investment. The Union Government had launched sovereign gold bond, gold monetisation scheme and Indian gold coin in 2015. These schemes were aimed at reducing physical demand for gold, bring into circulation idle gold lying with households, discourage its import and curb its damaging impact on trade balance.

Sovereign Gold Bond (SGB) Scheme

SGB Scheme is aimed at providing alternative to buying physical gold. Under it, bonds are denominated in units of one gram of gold and multiples thereof. These gold denominated bonds are restricted for sale to resident Indian entities, including individuals, Hindu undivided families (HUF), trusts, universities and charitable institutions.

The minimum subscription for individual and HUF is 1 gram and maximum is 4 kg. For trusts and similar entities, maximum subscription is 20 kg per fiscal. Price of bond is fixed in rupees on basis of simple average of closing price of gold of 999 purity published by India Bullion and Jewellers Association Limited for last 3 working days of week preceding the subscription period.

The tenor of SGB bonds is 8 years with provision of premature cancellation after 5 years on interest payment dates. Investors in SGB bonds have been provided with option of holding them in physical or dematerialised form.  RBI has notified rate of interest of 2.50% per annum on SGB bonds is payable on half yearly basis.

The bonds can be used as collateral for loans and loan-to-value ratio is set equal to ordinary gold loan mandated by RBI from time to time. Individual investing in it are exempted from capital gains tax arising on redemption of SGB. The indexation benefits are also provided to long-term capital gains arising to any person on transfer of bond.