Important things you need to know about Sovereign Gold Bonds scheme

The government announced on Friday that applications for the Sovereign Gold Bond scheme will open between November 5-20. Here are the important things that you need to know before deciding to invest in the scheme:

Zee Media Bureau

New Delhi: Investment in gold are considered to be relatively immune to economic slowdown and are considered as a good hedge against inflation. Keeping India's love for gold, and to reduce gold imports, government had announced a Sovereign Gold Bonds scheme in  the Budget 2015-16. 

The Finance Ministry on Friday announced that applications for the Sovereign Gold Bonds scheme will be accepted between 5-20 November 2015, and the bonds will be issued on November 26

Here are the details for better understanding of the scheme:
1.  The bonds will be issued by the Reserve Bank of India on behalf of the government

2.  Applications for the bond will be accepted between 5-20 November 2015, and issued on November 26

3. The Bonds will be sold through banks and designated post offices as may be notified. 

4. The bonds will nonly be sold to Indain entities including residents, trusts, univesrities, charitable institutions

5.  minimum permissible bond should be worth 2 grams of gold, and the maximum can be 500 grams. In case of Joint holding, the investment limit of 500 gm will be applied only to the first applicant

6. The Sovereign Gold Bonds will offer an interest rate of 2.75%. The interest will be payable semi-annually on the initial value of investment. 

7. There will be a commission of 1% on the subscription amount for distribution of bonds

8. 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

9. The price of the bond will be fixed in rupee terms, 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. The same procedure would be followed for calculating the redemption price for the bonds.

10. 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

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

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

13. The bonds will be issued in tranches for a period that will be notified. The issuance date will be specified in the notification 

14. Know Your Customer norms will be the same as that for purchase of physical gold. Voter ID card, Aadhar Card/PAN card/TAN/Passport will be required to purchase the bonds.