The government’s newly launched gold savings scheme – Sovereign Gold Bond Scheme (SGBS) has received 63,000 applications, mopping up close to Rs.250 crore for 917 kg of gold in the first issue.
SBGS was launched in November to curb the demand for physical gold and curtail excessive dependence on gold imports. It opened for subscription on November 5 and closed on November 20.
The government termed the response to SBGS as ‘overwhelming’. In a press statement, the government said, “It may be noted that this overwhelming response has been received from the retail investors who are the focus of this scheme. The positive response to this new and innovative saving instrument has elicited response from across the country and it is expected that subsequent tranches will continue to receive such enthusiastic response.”
However, some observers term the response lukewarm, indicating perhaps the yellow metal is loosing its sheen.
SGBS was issued on behalf of the Government of India by RBI at the branches of scheduled commercial banks and designated post offices through its e-kuber system from 5th November, 2015 to 20th November, 2015.
Only Indian residents can buy these bonds. SGBS has been issued in denominations of 2,5,10 grams of gold. Also, an individual cannot buy more than 500 grams of gold bonds per year. This translates to a maximum investment of Rs.12.83 lakh a year at today’s cost (Price of 10gm of gold is Rs.25,660 as on November 27, 2015).
SGBS has a maturity period 5-7 years. The government has proposed that the yield on these bonds be linked to the international rate for gold borrowing. An indicative lower limit on such borrowing rates is 2% per annum. This means that investors will get an indicative return of 2% per annum along with the mark-to-market loss or gain.
Like physical gold, investors can use these bonds as collateral for loans. In order to provide liquidity, the government has proposed to list these bonds on commodity exchange platforms.
SGBS will be treated as physical gold for taxation. That means, if an investor sells these bonds through an exchange within 3 years, the gains, if any, will be taxed at marginal rate of taxation. Similarly, long term capital gains arising out of sale of bonds after 3 years will be taxed at 10% or 20% with indexation.
RBI has sold these bonds through banks, post offices, NBFCs and brokers/agents. IFAs can sell these bonds.
Government intends to issue 50 tons of such bonds to raise around Rs.13,500 crore. More tranches will be issued during the financial year 2015-16.
