IFAs registered on stock exchange platforms like NSE NMF II and BSE Star MF can earn a healthy commission upto 1% on sovereign gold bonds (SGBS).
This is the fifth tranche of SGBS which opens for subscription from September 1 and closes on September 9.
In a press release issued by the Ministry of Finance, the government has said, “Commission for distribution of the bond shall be paid at the rate of 1% of the total subscription received by the receiving offices and such offices shall share at least 50% of the commission so received with the agents or sub agents for the business procured through them.”
While BSE Star MF is passing on the entire 1% commission to distributors, NSE NMFII is offering 99 basis points as a commission. In the fourth tranche, NSE NMF II had offered 95 basis point commission on a business of up to Rs. 20 crore and 99 basis point on collections exceeding Rs. 20 crore.
Only Indian residents can buy these bonds. SGBS will be issued in denominations of 1 gram of gold. Also, an individual cannot buy more than 500 grams of gold bonds per year. This translates to a maximum investment of Rs. 15.56 lakh a year at today’s cost (Price of 10gm of gold is Rs. 31,105 as on August 31, 2016).
These bonds will have a maturity period of eight years with a lock in period of five years. The government has linked the yield on these bonds to the international rate for gold borrowing. An indicative lower limit on such borrowing rate is 2% per annum. That means, investors will get an indicative return of 2% per annum along with the mark-to-market loss or gain.
In order to provide liquidity, the government has recently allowed to list these bonds on commodity exchange platforms which means that it can be traded on these platforms.
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. Also, these bonds are expected to offer a minimum yield of 2% 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.
