The government has announced four tranches of Sovereign Gold Bond Scheme (SGBS).
While the first issue is currently open for subscription till June 7, the next three tranches will be spread across three consecutive months i.e. July 8 -12, August 5-9 and September 9-13.
The issue price of the current bond issue is set at Rs. 3,196 per gram. For those who will subscribe online and pay through digital mode, the issue price will be less by Rs.50 per gram.
Only Indian residents and institutions can buy these bonds. SGBS will be issued in denominations of 1 gram of gold.
While the minimum permissible investment will be 1 gram of gold, an individual cannot buy more than 4 Kg of gold bonds per year.
These bonds will have a maturity period of eight years with a lock in period of five years. The investors will get compensation at a fixed rate of 2.5% a year on the amount of the initial investment. The interest will be paid semi-annually.
IFAs registered on stock exchange platforms like NSE NMF II and BSE Star MF can earn a healthy commission upto 1% on SGBS.
Why SGBS?
SGBS has an edge over gold ETFs. Firstly, there is no expense ratio in SGBS, which means there is no tracking error, like in the case of gold ETFs.
Moreover, these bonds are likely to offer a minimum yield of 2.5%, which is over and above mark-to-market value of gold. This will offer higher returns to investors. Also, these bonds come with a maturity of five and eight years.
Also, in a bid to make SGBS more attractive for investors, the Union Budget 2016 has made SGBS eligible for indexation benefits which is available in gold ETFs.
