Government of India has launched the seventh tranche (Series IV for FY 2016-17) of Sovereign Gold Bonds from February 27 to March 3, 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: February 27 to March 3, 2017
Price of each Bond: Rs 2,893 per bond [A discount of Rs 50 per gram has been offered (2943-50 = 2893)].
- 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 2,893 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
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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)
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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:
- The interest received is added to the income and taxed at the marginal tax slab.
- 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.
- 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.
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Should you Buy?
The last 6 tranches of Sovereign Gold Bond are listed on stock exchanges and trading between Rs 2,750 to Rs 2,800 per bond (as of February 23, 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 just 15 to 100 per day!
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.
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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!