Vaibhav Chadha and Nidhi Taparia
The Government of India opened up the 4th tranche for subscription of the Sovereign Gold Bond (SGB) Scheme on July 18, 2016. The subscription ended on July 22; giving investors a 4-day period to apply and avail the benefits of the SGB scheme. The SGB issue price has been fixed at Rs 3,119 per gram by the Government. The Finance Ministry announced the SGB scheme on October 30, 2015 and was launched on November 5, 2015 along with two other previously announced programmes by Prime Minister Narendra Modi, namely the Gold Monetization scheme and the Gold Coin scheme. “India has no reason to be described as a poor country, as it has 20,000 tonnes of gold.
The Sovereign Gold Bond scheme has been hailed as a step in the right direction by leading experts and the economy at large. It has also received great response from the public with the first set of sovereign gold bonds receiving 63,000 applications for 917 kg of paper gold worth Rs. 246 crore with its opening on November 5, 2015. Looking at the benefits it offers and the readiness of the Government to make improvements in it with successive tranches surely signals the coming of Acche Din for Gold investors.
The gold available with the country should be put to productive use, and these schemes show us the way to achieve this goal,” the PM Modi said while launching the schemes in 2015. Most Indians consider investment in gold as the safest and most gainful investment of all kinds. In a Gold-obsessed country like ours, the scheme aims to attract large number of investors so as to curb the demand for physical gold, something that drains a huge amount of foreign exchange every year in the form of second most imported commodity only after crude oil. India’s gold import bill was a whopping Rs. 34, 981.52 crores in 2015. In December alone it is estimated to have crossed the 100 tonne mark, following sharp increase in demand for the precious metal during the first and the last week of the month when prices fell sharply internationally.
SGB guarantees the purity and quantity of the investment at the time of redemption or even while trading. So, the investors do not have to worry about the quality, risks and storage like that of physical gold. Further, such bonds are bereft of the hurtful making charges that go into the price while purchasing gold in the form of Jewellery. In layman terminology, the advantage of this scheme is that investors will not only benefit from buying bonds at the prevailing gold prices but shall also earn an additional interest from it. Through the SGB scheme, the Reserve Bank of India (RBI) shall issue gold bonds on behalf of the Government of India. Investors bidding for the fourth tranche of the Sovereign Gold Bond scheme will earn an interest of 4 per cent annually for the period funds are transferred from clearing corporations to the RBI. An investor can invest for a minimum unit of one gram and a maximum of 500 grams. Such government securities denominated in grams of gold can be availed from stock exchanges National Stock Exchange and Bombay Stock Exchange, all bank branches, select post offices and the Stock Holding Corporation of India Limited. The Gold Bond scheme has tenure of eight years, with exit options in the 5th, 6th and 7th year. At the time of exit, the bond can be redeemed at the prevailing market rate of gold. The facts that the gold bond can be used as collateral for taking a loan and the redemption is also exempted from Capital Gains tax make it much more investor-friendly. The first three tranches of the Sovereign Gold Bond scheme attracted a whopping Rs. 1,318 crore, equivalent to 4.9 tonnes of gold at the prices prevailing at those times. The Government expects greater success in the current i.e. fourth tranche, courtesy the new added features that are definitely an improvement over the previous subscription calls.
The Sovereign Gold Bond scheme has been hailed as a step in the right direction by leading experts and the economy at large. It has also received great response from the public with the first set of sovereign gold bonds receiving 63,000 applications for 917 kg of paper gold worth Rs. 246 crore with its opening on November 5, 2015. Looking at the benefits it offers and the readiness of the Government to make improvements in it with successive tranches surely signals the coming of Acche Din for Gold investors.
(Vaibhav Chadha is a Research Associate at Dr. Syama Prasad Mookerjee Research Foundation, New Delhi and Nidhi Taparia is associated with St. Xaviers College, Rajasthan University)