Gold bonds to be launched on Nov 5; to offer 2.75% interest

New Delhi: The Sovereign Gold Bonds will offer an interest rate of 2.75 percent and will remain open for public subscription between November 5-20, Finance Ministry said on Friday.

Aimed at providing an alternative to buying physical gold, the gold bond scheme will offer investors a choice to buy bonds worth 2 grams of gold, up to a maximum of 500 grams.

"The bonds will be issued on November 26, 2015. Applications for the bond will be accepted from November 5, 2015 to November 20, 2015.

"The bonds will be sold through banks and designated post offices as may be notified," a Finance Ministry statement said.

This is the first tranche of the gold bond scheme and subsequent tranches would be notified later, it added.

The tenor of the bond will be for a period of eight years with exit option from 5th year to be exercised on the interest payment dates, the statement said.

"Price of bond will be fixed in Indian Rupees on the basis of the previous week's (Monday?Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd," it added.

The same procedure would be followed for calculating the redemption price for the bonds.

Interest on such bonds have been fixed at 2.75 percent per annum payable semi-annually on the initial value of investment.

The interest earned on gold bonds would be taxable, and capital gains tax shall be levied as in case of physical gold, the statement said.

The bonds can be used as collateral for loans and the loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time, it added.

The bonds would be tradable on exchanges and would be eligible for Statutory Liquidity Ratio.

The bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, universities and charitable institutions.

There would also be a commission of 1 percent on the subscription amount for distribution of bonds.

The borrowing through gold bonds would form part of market borrowing programme of the government. The bonds would be issued by the Reserve Bank.