Sovereign Gold Bonds

Why in news?

• Sovereign Gold Bonds (SGB) 2022-23 (Series II) will be opened for subscription during the period August 22-26, 2022

About the scheme:

• Sovereign Gold Bonds (SGBs) was introduced by the Government in 2015.
• They are government securities denominated in grams of gold. They are issued by the Reserve Bank of India (RBI) on behalf of the government.
• These bonds aims to help reduce India’s over dependence on gold imports.
• The move was also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing.

Eligibility:

• 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

Denomination and tenor:

• The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
• The tenor will be for a period of 8 years with exit option from the 5th year to be exercised on the interest payment dates.

Minimum and Maximum limit:

• The minimum permissible investment limit will be 1 gram of gold, while the maximum limit will be 4 kg for individual, 4 kg for Hindu Undivided Family and 20 kg for trusts and similar entities per fiscal (April-March) notified by the government from time to time.

What are the benefits?

• The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption.
• 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.
• SGB is free from issues like making charges and purity in the case of gold in jewellery form.
• The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Add ons:

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

PRACTICE QUESTION:

Which of the following statements are correct regarding ‘Sovereign Gold Bond Scheme’

1. The Bond is issued by Reserve Bank on behalf of Government of India.

2. Non-resident Indian are allowed to purchase ‘Sovereign Gold Bond’ under this scheme.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer