Gold Bond Scheme Opens, to offer Discount of Rs 50/gram

In a bid to make SGB – Sovereign Gold Bonds even more attractive, the Modi government is offering a discount of Rs.50 per gram in the 6th tranche of the scheme which opens today. The bond’s issue price had been fixed at Rs.2,957 per gram of gold. The bond’s nominal value fixed on the basis of simple average of closing price for gold of ‘999’ purity of the previous week (Oct 17th -21st, 2016) published by the India Bullion and Jewellers Association Limited or IBJA works out to be Rs.3,007 per gram.

The central bank said in a statement that the Government of India, in consultation with the RBI or Reserve Bank of India, has decided to offer a discount of Rs.50 per gram on the nominal value of the SGB – Sovereign Gold Bond. Therefore, the issue price has been fixed at Rs.2,957 per gram of gold.

The SGB Scheme 2016-17, Series III shall be open for subscription from 24th October to 2nd November. SGB, an alternative mode of investment to the physical gold, was launched in the month of November last year. It offers investors a choice to diversify portfolio without even the need to purchase the metal in its physical form. So far, the Indian government has come out with 5 tranches of SGB for a total value of Rs.3,060 cr. The Reserve Bank of India (RBI) issues bonds on behalf of the Government of India.

The postulates of the bond:

• The tenor of the bonds shall be for a period of eight years with exit option from fifth year to be exercised on the dates of interest payment.
• Payment for the bonds shall be through cash payment (up to a maximum of 20,000 rupees) or cheque or demand draft or electronic banking.
• The maximum amount subscribed by an entity shall not be more than five hundred (500) grams per person per financial year.
• A self-declaration to this effect shall be obtained. In case of a joint holding, the investment limit of 500 grams shall be applied only to the first applicant.

India and Gold:

Many Indians have a belief that purchasing the yellow metal is auspicious or fortunate on Dhanteras, and this launch coincides with that. There are a few changes in these bonds, as compared to the previous issuances. Firstly, the yearly interest payable on these bonds is marginally down to 2.5 per cent from 2.75 per cent in the previous 5 tranches. Secondly, these bonds are being provided at a discount of Rs.50 per gram. Earlier, the bond issuances were at the nominal closing value of pure gold. Indians love gold and generally buy it for 2 reasons, either for investment or consumption in jewelry form.

A market expert stated that the investment allocation should move to gold bonds, as the benefits are far higher than buying physical gold. He believes that investors could have a 5-10 per cent allocation to gold and there isn’t any compelling reason to buy gold in the near-term over other asset classes.

These bonds shall be listed and traded on the stock exchanges. The Indian government mobilized about Rs.1,900 cr from the last 2 tranches of gold bonds. With the festive season knocking at the door, good monsoon, nationalized banks, post offices and individual agents, financial planners estimate the collection in this series to be way higher.

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