Sovereign Gold Bond Scheme

WHAT IS SOVEREIGN GOLD BOND?

• SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold.
• Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.

WHO IS THE ISSUER?

• The Bond is issued by Reserve Bank on behalf of Government of India. Thus, the Bonds will have a sovereign guarantee.

BENEFITS:

• The SGB offers a superior alternative to holding gold in physical form.
• The risks and costs of storage are eliminated.
• Investors are assured of the market value of gold at the time of maturity and periodical interest.
• The scheme will help in reducing the demand for physical gold.
• Since most of the demand for gold in India is met through imports, this scheme will, ultimately help in maintaining Current Account Deficit within sustainable limits.

RISKS IN INVESTING IN SGBS:

• There may be a risk of capital loss if the market price of gold declines.
• However, the investor does not lose in terms of the units of gold which he has paid for.

ELIGIBILITY TO INVEST:

• Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB.
• Eligible investors include individuals, HUFs, trusts, universities and charitable institutions.
• KYC norms will be the same as that for gold.

PRACTICE QUESTION:

Q. Consider the following statements regarding “Sovereign Gold Bond” scheme:

1. These bonds are issued by Reserve Bank of India.
2. Non-Resident Indians can invest in sovereign gold Bond scheme.

Which of the statements given above is/are correct:

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer to Prelims question