The seventh tranche of sovereign gold bond is expected to receive good response as the money deposited in banks during the demonetisation drive is likely to be pumped into this scheme, reckon marketmen and analysts. The scheme is hitting the market after a gap of four months, and is the first after the government’s note-ban initiative. Also, it is priced nearly 1.7% cheaper than the prevailing gold rate in the market.
Gold has appreciated by almost 9% since the beginning of this year.
The seventh tranche of SGB opened yesterday and closes on March 3, and the bonds will be issued to eligible applicants on March 17. The bond offers a 2.5% interest per annum to investors. This will be the last tranche for the current financial year. Individuals, Hindu Undivided Families, trusts, universities and charitable organisations can buy these bonds.
Gold bonds are a better way to invest in the metal as the investment will earn an interest over and above the appreciation in the value of gold.
The interest rate has been fixed at 2.5% pa payable semi-annually. The tenor of the bond will be for eight years and the buyer will have an exit option from fifth year which can be exercised on the interest payment days. The minimum quantity of investment will be one gram and the maximum is 500 grams per person per fiscal year. For joint holders, the investment limit of 500 grams will be applied to the first applicant only.
The bonds can be used as collateral for loans, similar to other financial products such as mutual funds, life insurance policy, Public Provident Fund, etc. The loan-to-value ratio will be set at the ordinary gold loan mandated by RBI. At present, the central bank has said the LTV ratio for loan against jewellery cannot be over 75%. LTV ratio is the amount of loan one can get against mortgaging the metal to a bank or a non-banking financial company.
The KYC documentation will be same as that for purchase of physical gold from a jeweller and coins from a bank or post office. Documents such as voter-card ID, Aadhaar card, PAN or TAN will be required from the buyers. The payment for the bonds will be through cash for up to Rs.20,000, demand draft, cheques or electronic banking.
Capital gains tax will be exempted on redemption of the bonds. Also, the long-term capital gains arising to any person on transfer of the bonds will be eligible for indexation benefits.