On September 9, 2015, a new sovereign gold bond scheme has been approved by a meeting of the cabinet presided over by Prime Minister Narendra Modi.
What is it?
Gold Bond Scheme means that up to 500 grams worth of bonds per annum can be bought by an individual with lock-in of five-seven years and appropriate interest, so that they are protected from volatility. It has come as a financial asset alternative to gold.
- Gold bond will be issued in denominations of 5, 10, 50 and 100 grams of gold or others.
- RBI will issue gold bonds on behalf of the government
- Capital gain on gold bond will be similar to that of physical gold.
- Maximum limit per person per year in gold bonds will be 500 grams.
- Interest on gold bonds will be declared from time to time.
- Normal taxation laws would be applicable on gold bonds.
- Gold Bond Scheme will help in productively using the vast amounts of gold in the economy.
- It will help in mobilising gold with people.
- It will help in reducing reliance on imported gold.
- It will help in conserving foreign exchange.
- It will allow for more liquidity in the market by allowing holders to earn from their assets.
- It will be issued and redeemed by banks, non-banking financial companies, agents of National Saving Certificate (NSC) for a fee.
- It can be used as a collateral for loans.
- It can be sold and traded for exchanges.
Investors likely to react positively to sovereign gold bonds
With the sale for the second tranche of sovereign gold bonds beginning from 18 January, a good response is expected from investors. Sharemarket turmoil and pricing the gold bonds below the market rates have been regarded as two prime reasons behind investors’ growing interest in diversification of holdings. India has planned to sell 150 billion rupees ($2.22 billion) in gold bonds in the fiscal year ending on 31 March, 2016.
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