Seventh tranche of Sovereign Gold Bonds to open on February 27

The government will launch the seventh tranche of Sovereign Gold Bonds (SGB) on Monday under which people will be able to buy securities worth up to 500 grams of the metal.

This would be the last offering for the current financial year.

"Government of India, in consultation with the Reserve Bank of India (RBI), has decided to issue SGB 2016-17-Series IV. Applications for the bond will be accepted from February 27 to March 3," the Finance Ministry said.

The bonds will be issued to eligible applicants on March 17, 2017, it added.

An alternative mode of investment to physical gold, the SBG scheme was launched in November 2015. It provides investors with a choice to diversify a portfolio without the need to buy the metal in physical form.

So far, the government has come out with six tranches of the SGB.

The bonds will be sold through banks, Stock Holding Corporation of India (SHCIL), designated post offices and recognised stock exchanges, the NSE and BSE.

Government mobilised Rs 3,060 crore from five tranches. The RBI issues bonds on behalf of the government.

"The (SGB) investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value of an investment," the ministry said.

The tenor of the bonds will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.

Payment for the bonds will be through cash payment (up to a maximum of Rs 20,000) or demand draft or cheque or electronic banking.

The maximum amount subscribed by an entity will not be more than 500 grams per person per FY. A self-declaration to this effect will be obtained. In the case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

The price of the bond will be fixed in rupees on the basis of a simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the week (Monday to Friday) preceding the subscription period. The issue price of the Gold Bonds will be Rs 50 per gram less than the nominal value.

The bonds can be used as collateral for loans. The loan-to-value ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.

The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long-term capital gains arising to any person on the transfer of bond.

Bonds will be tradable on stock exchanges from a date to be notified by the RBI.