Trading in sovereign gold bonds to start from Monday

New Delhi: Sovereign gold bonds will begin trading on stock exchanges for the first time from Monday, providing investors a greater choice to diversify portfolio without the need to buy the metal in physical form.

Top exchanges BSE and NSE Thursday announced the launch of such bonds from Monday after the Reserve Bank of India (RBI) and markets regulator Sebi cleared the trading in the new instrument recently.

In separate statements, the exchanges said that the product will be launched in their cash segments.

Investors already registered with the exchanges can start investing directly in the Sovereign Gold Bond (SGBs) through their brokers, without the need of any additional documentation.

"These SGBs will be traded under the "G" Group of equity cash segment of BSE, along with other government securities available for trading and settled on T+2 basis in the demat account of the investors," BSE said.

The Sovereign Gold Bond Scheme was announced by the government on October 30, 2015. These bonds are issued by the RBI on behalf of the government.

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 NSE's retail distribution capabilities," NSE Strategic Business Head-Currency and Fixed Income Huzan Mistry said.

The bonds will carry an interest rate of 2.75 percent (fixed rate) per annum 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 and the fourth tranche is expected soon.

RBI notified June 13 as the date for commencement of trading of SGBs issued in the first tranche. It will notify similar dates for the subsequent tranches later, all such bonds will be available on the exchanges for trading.