Saturday, October 31, 2015

Government to issue Sovereign Gold Bonds with effect from 26th November, 2015; Bonds to be sold through banks and designated post offices

Government of India, in consultation with Reserve Bank of India (RBI), has decided to issue Sovereign Gold Bonds. The Bonds will be issued on November 26, 2015. Applications for the bond will be accepted from November 05, 2015 to November 20, 2015. The Bonds will be sold through banks and designated post offices as may be notified. The borrowing through issuance of the Bond will form part of market borrowing programme of Government of India.

It may be recalled that the Finance Minister had announced in Union Budget 2015-16 about developing a financial asset, Sovereign Gold Bond, as an alternative to purchasing metal gold.

The major features of the Bond are given below:

Sl. No.
Item
Details
1
Product name
Sovereign Gold Bond
2
Issuance
To be issued by Reserve Bank India on behalf of the Government of India.
3
Eligibility
The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities, charitable institutions.
4
Denomination
The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
5
Tenor
The tenor of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.
6
Minimum size
Minimum permissible investment will be 2 units (i.e. 2 grams of gold).
7
Maximum limit
The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). A self-declaration to this effect will be obtained.
8
Joint holder
In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.
9
Frequency
The Bonds will be issued in tranches. Each tranche will be kept open for a period to be notified. The issuance date will also be specified in the notification.
10
Issue price
Price of Bond will be fixed in Indian Rupees on the basis of the previous week’s (Monday–Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA).
11
Payment option
Payment for the Bonds will be through electronic funds transfer/cash payment/ cheque/ demand draft.
12
Issuance form
Government of India Stock under GS Act, 2006. The investors will be issued a Stock/Holding Certificate. The Bonds are eligible for conversion into demat form.
13
Redemption price
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.
14
Sales channel
Bonds will be sold through banks and designated Post Offices, as may be notified, either directly or through agents.
15
Interest rate
The investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment.
16
Collateral
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.
17
KYC Documentation
Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
18
Tax treatment
The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961) and the capital gains tax shall also remain same as in the case of physical gold.
19
Tradability
Bonds will be tradable on exchanges/NDS-OM from a date to be notified by RBI.
20
SLR eligibility
The Bonds will be eligible for Statutory Liquidity Ratio.
21
Commission
Commission for distribution shall be paid at the rate of 1% of the subscription amount.

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