Trading in sovereign gold bond to commence from Monday

RBI and Sebi have recently cleared trading in the new instrument

Sovereign gold bonds will begin trading in capital markets for the first time from Monday, providing investors greater choice to diversify portfolio, without the need to buy the metal in physical form.

The Reserve Bank of India (RBI) and market regulator Security and Exchange Board of India (Sebi)have recently cleared trading in the new instrument.

In a statement National Stock Exchange (NSE) said product will be launched in its cash segment to ensure ease of trading and wider reach for investor to buy and sell the bond through the exchange.

The Sovereign Gold Bond Scheme was announced by the government on October 30 in 2015. The minimum investment size in the secondary market will be as low as 1 gm.

The tenure of the bond is eight years with an exit option from fifth year to be exercised on the interest payment dates.

"NSE is expecting large retail acceptance as this product is a better substitute for physical gold. We expect the product to work well keeping in mind NSEs retail distribution capabilities," NSE Strategic Business Head of Currency and Fixed Income, Huzan Mistry said.

The bonds will carry an interest rate of 2.75% (fixed rate) a year on the amount of initial investment. Interest is to be paid half-yearly and the last interest will be payable on maturity, along with the principal.

The product is accompanied with few beneficial tax features. Though the long term capital gains tax is applicable after three years and the same will be zero if redeemed after full maturity only.

NSE and BSE have been appointed by Sebi for acting as receiving office for collecting subscription bids from investors.

So far, three tranches of the bonds have been issued. The first batch was issued from November 5 to November 20, 2015. The fourth tranche is expected soon.