Sovereign Gold Bond Scheme Current Affairs
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).
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.
The fourth tranche of the Sovereign Gold Bonds (SGB) scheme opened for subscription.
SGB is government securities denominated in grams of gold. It offers an alternative to holding gold in physical form. The scheme was launched by the Union Government in October 2015.
Government has fixed 3,119 Rupees per gram as the issue price for the bond in this tranche. The scheme will be open till 22 July 2016.
- The bond can be purchased from the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
- Besides, all Bank branches and select Post Offices and Stock Holding Corporation of India Limited will also issue it.
- In this tranche minimum subscription has been reduced to 1 gram and maximum at 500 gram per person or institution. Earlier, the minimum denomination was 5 gram.
- The SGB bonds can be converted into demat form and can be used as collateral for availing loans. Redemption of SGB bonds by an individual is exempted from capital gains tax.
- SGB gives an interest of 2.75 per cent per annum and is payable every six months on initial investment.
- Government will use the funds raised through these bonds as part of its market borrowing programme.
- Through this scheme Government aims to attract a large number of investors to curb the demand for physical gold, mainly imported in large quantities leading to draining the country’s foreign exchange.
- Thus it will keep a lid on the country’s current account deficit as gold imports are the second-biggest constituent of the import bill after crude oil.
- The first 3 tranches of SGB Scheme had attracted an investment of 1,318 crore rupees, equivalent to 4.9 tons of gold at the then prevailing prices.