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General Awareness for Bank exams: Sovereign Gold Bond Scheme 2015

Jan 16, 2016 09:00 IST

    The RBI, in consultation with Government of India, has decided to issue Sovereign Gold Bonds (SGBs) linked to the price of gold in an effort to reduce import of the precious metal. India consumes nearly 1,000 tonnes of gold every year, most of it imported, and gold is the second-biggest expense on its import bill after oil. Here, banking team of jagran josh is providing some facts related to the Sovereign Gold Bond Scheme 2015.

    What is Sovereign Gold Bond (SGB)? Who is the issuer?

    SGBs are government securities denominated in grams of gold. In other words, SGBs are papers or certificates issued by the government saying that investors bought a certain amount 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. The Bond is issued by Reserve Bank on behalf of Government of India.

    What are the benefits to buy SGB rather than physical gold?

    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.

    These bonds can be used as collateral for loans. The Loan to Value (LTV) will be equal to that of ordinary gold loans. As per RBI regulations, the maximum LTV allowed for gold loans is 75 per cent.

    Are there any 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.

     Who is eligible to invest in the SGBs?

    Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, Hindu Undivided Family (HUFs), trusts, universities, charitable institutions, etc.

    Where can investors get the application form?

    The application form will be provided by the issuing banks/designated Post Offices/agents. It can also be downloaded from the RBI’s website. Banks may also provide online application facility.

    What are the Know-Your-Customer (KYC) norms?

    Know-Your-Customer (KYC) norms will be the same as that for purchase of physical form of gold. Identification documents such as Aadhaar card/PAN or TAN /Passport / Voter ID card will be required. KYC will be done by the issuing banks/Post Offices/agents.

    What is the minimum and maximum limit for investment?

    The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be two grams with a maximum buying limit of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.

    What is the rate of interest and how will the interest be paid?

    According to recent announcement by RBI, the Bonds bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semiannually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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