The government has decided to step up issuance of sovereign gold bonds and will accept applications from interested investors each month between October and February, as it aims to shift a portion of investment demand towards “paper gold” to trim physical purchases and contain their damaging impact on trade balance. Since their introduction in late 2015, the gold bonds were never issued with such high frequency. The last tranche of such bonds was issued only in April.
The bonds carry a 2.5% annual interest for investors and investors will get the interest payable semi-annually on the nominal value of investment.
As per the finance ministry proposal, applications for the bonds will be accepted for four days each month before the issuance. The bonds will be issued to eligible applicants on October 23, November 13, January 1, January 22 and February 12. The investors will get the interest payable semi-annually on the nominal value of investment.
The government has decided to promote gold bond scheme, conscious of the fact that that hiking the customs duty on gold from the current 10% to trim imports also raises risks of smuggling.
The government has budgetted to garner as much as Rs 5,000 crore from all the three gold schemes this fiscal — the same as 2017-18 (revised estimate). The sovereign gold bond, gold monetisation scheme and Indian gold coin were launched by Prime Minister Narendra Modi in late 2015.
The gold schemes are still far from a roaring success though. The government had budgetted to mop up Rs 10,000 crore from the three schemes in 2016-17 but it could mop up only Rs 3,451 crore, which was equivalent of just around 2% of the country’s annual consumption.
However, analysts have said the schemes provide more choices to investors and could potentially be a massive success if they are designed even better and once investors are made aware of their many benefits. Of the two big schemes, gold bond has been more popular than the monetisation scheme. So the government seems to be focussing more on the bond scheme.
While the interest is taxable, investors have been exempted from any tax on capital gains from the redemption of such gold bonds. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond. Bonds will be tradable on stock exchanges within a fortnight of the issuance, on a date to be notified by the RBI.
The bonds will be sold through banks, Stock Holding Corporation of India, designated post offices, the National Stock Exchange and the Bombay Stock Exchange.
The tenor of the bonds will be for a period of eight years, with exit option from 5th year to be exercised on the interest payment dates. The issue price of the gold bonds will be Rs 50 per gram less than the nominal value, the finance ministry said.
As low as 1 gram of gold can be invested, with maximum limit that can be subscribed by an individual or Hindu undivided family fixed at 4 kg per fiscal. A self-declaration to this effect will be obtained. In case of joint holding, the investment limit of 4 kg will be applied to the first applicant only. However, for trusts and similar entities, the limit can be 20 kg per fiscal.