Gold bonds, monetisation scheme: All you need to know

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New Delhi | Published: September 9, 2015 6:08:59 PM

The government on Wednesday approved the Gold Monetisation and Sovereign Gold Bond Schemes which were earlier proposed by the Finance Minister Arun Jaitley during this year Budget.

Gold priceUnder the Sovereign Gold Bond Scheme, instead of buying gold in physical form investors can park their money in bonds which are backed by gold. (Reuters)

The government on Wednesday approved the Gold Monetisation and Sovereign Gold Bond Schemes which were earlier proposed by the Finance Minister Arun Jaitley during this year Budget. The prime objective of these plans is to curtail gold import into the country.

This will help in reducing the demand for physical gold by shifting a part of the estimated 300 tonnes of physical bars and coins purchased every year for investment into gold bonds. Since most of the demand for gold in India is met through imports, this scheme will, ultimately help in maintaining the country’s current account deficit within sustainable limits.

Gold Monetisation Scheme

The gold monetisation scheme is aimed to mobilise the surplus gold holdings held with Indian households and institutions as deposits. Hareesh V, research head, Geofin Comtrade, said, “Under the scheme, gold lying idle with people can be deposited in banks and generate interest. The return from these deposits is totally tax free. The deposited gold will be melted and make available for jewelers as raw material so as to restrict the increased dependence of imported gold.”

Sovereign Gold Bond Scheme

Under the Sovereign Gold Bond Scheme, instead of buying gold in physical form investors can park their money in bonds which are backed by gold. The bonds will be available both in demat and paper form. These bonds will be issued in denominations of 5, 10, 50 and 100 grams of gold or other denominations.

Sovereign Gold Bond has more or equal advantage against the physical gold. The bond will be issued by RBI on behalf of the Government of India. The bond would be restricted for sale to resident Indian entities and the maximum allowable limit is 500 grams per person per year.

The government will issue bonds with an appropriate rate of interest and which shall be payable in terms of grams of gold. Banks/NBFCs/Post offices may be authorised to transact on these bonds on behalf of the Government for a fee. The bonds will be available in various denominations and the minimum tenor of the bond could be around 5 to 7 years.

These bonds can be used as collateral for loans. The Loan to Value ratio is to be set equal to ordinary gold loan mandated by the RBI from time to time. They can be easily sold and traded on exchanges to allow early exits for investors who may so desire. Capital gains tax treatment will be the same as for physical gold for an ‘individual’ investor.

On maturity, the redemption will be in rupee amount only. The rate of interest on the bonds will be calculated on the value of the gold at the time of investment. The principal amount of investment, which is denominated in grams of gold, will be redeemed at the price of gold at that time. If the price of gold has fallen from the time that the investment was made, or for any other reason, the depositor will be given an option to roll over the bond for three or more years.

KYC norms will be the same as that for gold.

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