Gold bond scheme to be launched on Thursday

The Reserve Bank of India (RBI) will start issuing sovereign gold bonds on November 26, 2015, with a tenor of eight years and an interest rate of 2.75 per cent, the finance ministry said in a statement. The bonds will be open for public subscription from November 5-20, it added.

“Government of India, in consultation with RBI, has decided to issue sovereign gold bonds. The bonds will be sold through banks and designated post offices. The borrowing through issuance of the bond will form part of market borrowing programme of government of India,” the ministry said.

According to Sudheesh Nambiath, lead analyst (precious metals demand), GFMS Thomson Reuters, South Asia and UAE, the scheme has been planned well, keeping long-term investors’ interest in mind. “The pricing mechanism is attractive, giving time for decision making to invest at appropriate price levels. Investor response is going to be phenomenal given that it is a good alternative to holding physical gold at home, given the safety feature.”

BONDS OF GOLD

• The Reserve Bank of India will start issuing sovereign gold bonds on November 26, 2015
   
• The scheme has been planned well, keeping long-term investors’ interest in mind

The price of gold for the scheme will be calculated based on the previous week’s simple average gold price announced by the Indian Bullion and Jewellers Association.

According to sources, Prime Minister Narendra Modi will formally launch the sovereign gold bond scheme, along with two other-previously announced plans - the gold monetisation scheme and the gold coin scheme - on November 5.

“The minimum permissible investment will be two units (grammes).The maximum amount subscribed by an entity will not be more than 500 grammes per person per financial year (April-March). A self-declaration to this effect will be obtained,” said the statement, adding the bonds will be denominated in multiples of grammes of gold with a basic unit of 1 gramme.

“The tenor of the bond will be for a period of eight years with exit option from the fifth year to be exercised on the interest payment dates,” the statement noted.

The bonds will be restricted for sale to resident Indian entities only including individuals, trusts, universities, and charitable institutions. The interest earned on gold bonds would be taxable, and capital gains tax shall be levied as in case of physical gold. The bonds can be used as collateral for loans and the loan-to-value ratio is to be set equal to ordinary gold loan mandated by RBI from time to time, the statement added.

It also said the bonds would be tradable on exchanges and would be eligible for statutory liquidity ratio. Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as voter’s ID card, Aadhaar card, PAN card, passport etc will also be required.

Sources had earlier said that Rs 15,000 crore worth of the gold bonds could be issued, though the first tranche would only be worth Rs 1,000 crore to gauge market reactions.