Sovereign Gold Bond Scheme


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In November 2015, under the Gold Monetization Scheme, the Government of India launched the Sovereign Gold Bond Scheme. Under this scheme, with the consultation of the Government of India, issues for subscription are made in tranches by the Reserve Bank of India also known as RBI. Terms and conditions for this scheme are notified by the Reserve Bank of India on a timely basis. Subscriptions for the sovereign gold bond scheme will be open in a calendar time manner and the rate of interest of the scheme will also be declared by the Reserve Bank of India before every new tranche is issued through a press release.

Salient Features of the Scheme

Under the scheme, multiples of grams of gold with the minimum unit of 1 gram will be denominated. The interest rate for gold bonds will be 2.5 % per annum which will be paid semi-annually on the nominal value. Gold bonds will be issued as stocks under the Government Security Act of 2006. The investors will also be given a Holding Certificate to validate the same.

The tenure to holding the bond will be for 8 years and an exit option will be provided in the 5th, 6th, and the 7th year on the day that interest payment is due. The maximum amount of gold that can be subscribed for an individual is 4 kg, for a Hindu undivided Family is also 4kg, and for trust and similar entities is 20 kg.

Who should invest in sovereign gold bond schemes?

Any investor who has an appetite for a low-risk investment in a trusted Government security should invest in Sovereign Gold Bond Scheme. The bonds are one of the highest return-bearing schemes which are mandated by the Indian Government. Investors were looking for a diversification in their investment portfolio can also go ahead with investing in sovereign gold bonds.

Eligibility to purchase sovereign gold bonds

Any person who is an Indian resident,  an individual, an association, or a trust, and HUF is eligible to invest in this scheme. Even joint investment in bonds with other eligible members who meet the criteria can invest. Minors can also indirectly own sovereign gold bonds provided they have a legal guardian who makes the purchase for them.

How to invest in sovereign gold bonds?

The investor should download the application form online and provide a Pan Card number which is issued by the Income-Tax department. The gold bonds are sold through branches of nationalized banks, scheduled foreign banks, stock holding corporations of India, scheduled private banks, and designated post offices.

Advantages of sovereign gold bonds

  1. Sovereign gold bonds can be used as collateral or security when dealing with some banks.
  1. Gold bonds are traded on the National stock exchange and the Bombay stock exchange after 5 years of holding. This helps the investor with the new option of trading on the stock exchange.
  1. The investor transfers the bonds before maturity, he will receive indexation benefits and also a guaranteed sovereign interest on the redemption money.

Although gold sovereign bonds are a safe investment, any change or decline in market performance may result in a direct risk at capital due to the drop in gold rate itself. Certain KYC documents are also required to invest in sovereign gold bonds such as identity proof in form of an Aadhar card pan card and a process of KYC registration through the issuing banks, agents, or post offices.

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