Ahead of the festival of Dhanteras on October 28, the government on Thursday announced a new tranche of sovereign gold bonds (SGB), to lure people away from the physical yellow metal to the alternative financial product.
However, the interest rate on the latest SGB issue is pegged at 2.5% per annum, 25 basis point lower than the 2.75% paid in the previous tranche in September. Applications for the bonds will be accepted between October 24 and November 2, the finance ministry said in a statement. The bonds would be available for subscription at designated banks, Stock Holding Corporation, post offices, NSE and BSE.
The SGBs would be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The subscriptions would be restricted to resident Indian entities including individuals, HUFs, trusts, universities and charitable institutions.
The price of bonds will be fixed in rupees on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association for the week (Monday to Friday) preceding the subscription period. The issue price of the Gold Bonds will be R50 per gram less than the nominal value, the ministry said.
The SGB scheme was launched as an alternative mode of investment to physical gold in November 2015. The aim of the SGB is to reduce demand, including through imports, for physical gold, and in the process reduce India’s current account deficit. The purchase of the yellow metal picks up during the festival of Dhanteras that marks the beginning of the five-day long Diwali celebration, as it is believed that buying gold at that time is auspicious.
Three tranches of the SGB scheme were floated in FY16 while two tranches have already been issues in FY17. The total subscription in the first five tranches stood at about R3,060 crore, corresponding to 10.22 tonne of gold.