Sovereign Gold Bond – July 2017 – Review & How to Apply?

Sovereign Gold Bond - Tranche IX - July 2017

Sovereign Gold Bond – Tranche IX – July 2017

Government of India has launched the eighth tranche (Series II for FY 2017-18) of Sovereign Gold Bonds from July 10 to 14, 2017. These bonds are investment scheme where investors could buy gold in the form of Gold Bonds from Government of India.

Highlights Sovereign Gold Bond

Eligibility: Resident Individuals, HUFs, trusts, universities, charitable institutions, etc

Application Date: July 10 to 14, 2017

Price of each Bond: Rs 2,780 per bond [A discount of Rs 50 per gram has been offered (2830-50 = 2780)].

  • The first tranche was issued in November 2015 at Rs 2,684 per gram,
  • Second tranche in January 2016 at Rs. 2,600
  • Third tranche at Rs 2,916 per gram
  • Fourth tranche at Rs 3,119 per gram and
  • Fifth tranche at Rs 3,150 per gram
  • Sixth tranche at Rs 2,957 per gram
  • Seventh tranche at Rs 2,893 per gram
  • Eighth tranche at Rs 2,901 per gram

Interest Rate: 2.50% per annum payable every 6 months in the bank account [This has reduced from tranche 6 onward from earlier offer of 2.75%]

Minimum Investment Limit: 1 bond

Date of Issue: July 28, 2017

Also Read: Investment Risks and How to deal with them

Maximum Investment Limit: 500 bonds per person per financial year

Tenure: 8 year [early exit possible from 5th year on wards interest payment dates]

Where to buy? Banks, Designated Post Offices and Stock Holding Corporation of India Ltd. (directly or through agents)

Application Form: You can download the form from RBI website or from respective banks. Also you can invest through your demat accounts.

KYC Documents: Voter ID, Aadhaar card/PAN or TAN /Passport i.e same as for purchase of physical gold

Payment Mode: Demand Draft, Cheque or Electronic Payment. Cash payment can only be done up to Rs 20,000.

Joint Holding: Possible (the maximum limit applies to first holder only)

Also Read: 25 Tax Free Incomes & Investments in India

Investment in the name of Minor is possible to be made by his/her guardian

Redemption Pricing: Based on previous week average price of closing price of gold of 999 purity as per India Bullion and Jewellers Association Ltd

Loan: bonds are allowed as collateral. The loan to value can be same as in case of physical gold

Listing: The bonds would be listed on stock exchange and can be sold/bought though demat account.

Taxation of Sovereign Gold Bond:

There are three parts to taxation:

1. The interest received is added to the income and taxed at the marginal tax slab. However there is NO TDS on the interest.

2. Budget 2016 has made gains on redemption of the bond exempted from capital gains tax. This means if the subscriber redeems the bond after 5 years, no tax would be payable on the gains.

3. However if the bond is sold, any gains would be considered as capital gains as in case of physical gold and taxed accordingly. If the bonds are sold with in 3 years of purchase its short term capital gains and is taxed at marginal tax rate. In case the sale is after 3 years its long term capital gains and is taxed at 20%, with indexation benefit.

Also Read: 13 Investments to Generate Regular Income

Should you Buy?

The last 8 tranches of Sovereign Gold Bond are listed on stock exchanges and trading between Rs 2,710 to Rs 2,780 per bond (as of July 6, 2017). The prices are definitely lower than the fresh issue but the problem is you may not be able to buy as the traded volume is very low.

Sovereign Gold Bond listed on Stock Exchange as of July 6, 2017

Sovereign Gold Bond listed on Stock Exchange as of July 6, 2017

This also shows the liquidity problem that you may face in case you want to sell before maturity. So invest only if you want to retain bonds till maturity.

Also Read: Highest Interest Rate on Bank Fixed Deposits

Recommendation:

Invest in sovereign Gold bonds only if you wanted to invest in gold or need gold for marriage etc in next 5 to 8 years. These bonds are efficient way of investment as you need not worry about purity; there is no loss of making charges and no tension about safety and storage. Additionally you get 2.5% interest every year.

However you should NOT invest aggressively in gold as it would at best give inflation equivalent returns. Also remember exiting this bond mid-way might be difficult! 

Sovereign Gold Bond - July 2017

Sovereign Gold Bond – July 2017

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