BSE launches online system for Sovereign gold bond

• BSE(Bombay Stock Exchange) has launched an online bidding platform for sovereign gold bonds and has begun conducting mock bidding sessions on the system.
• BSE has received Reserve Bank’s approval to start an online bidding platform for sovereign gold bond (SGB) scheme.
• So far, three tranches of the bonds have been issued amounting to about Rs.1,322 crore.

About Gold bond scheme:

• SGBs(Sovereign Gold Bond) are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The main idea of this scheme is to reduce the demand for physical gold.
• Bonds will be issued on behalf of the Government of India by RBI.
• Issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by Government.
• Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB.
• Eligible investors include individuals, HUFs, trusts, universities, charitable institutions, etc.

Features of this scheme

• The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.
• SGB is free from issues like making charges and purity in the case of gold in jewellery form.
• The Bonds bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
• The Sovereign Gold Bonds will be available both in demat and paper form.
• The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.
• They will carry sovereign guarantee both on the capital invested and the interest.
• Bonds can be used as collateral for loans.
• Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
• In Sovereign Gold Bonds, capital gains tax treatment will be the same as for physical gold for an 'individual' investor.
• The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be two grams with a maximum buying limit of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.
• Bonds are sold through scheduled commercial banks and designated Post Offices either directly or through their agents like NBFCs, NSC agents, etc.
• The customers will be issued Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/Post Offices/agents or obtained directly from RBI on email, if email address is provided in the application form.
• Price of bond will be fixed in Indian Rupees on the basis of the previous week's (Monday – Friday) simple average price for gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA). The issue price will be disseminated by the Reserve Bank of India.

By: Vishal