What are the major highlights of the Sovereign Gold Bond issue that is opening on Monday, 20th June?
Answer
Answer
On behalf of the government of India, the RBI has just announced the first tranche of Sovereign Gold Bonds issue for fiscal year FY23. This first tranche opens for subscription on Monday 20th June and will close for subscription on Friday 24th June, and remain open for a period of five working days. Government has announced just two tranches for the Sovereign Gold Bond (SGB) issues with the second tranche opening on 22nd August and closing on 26th August 2022. First tranche has been priced at Rs5,091 per gram.
Before I get into the highlights of the Sovereign Gold Bond issue, let me quickly delve into the history of the SGBs since they were first launched in India in the year 2015. Till date, there have been a total of 59 issues of sovereign gold bonds over 7 years. The government has sold nearly 90,365 kilograms of gold via SGB route and raised Rs38,693 crore via issue of SGBs. All the previous issues have been priced based on the prevailing price of gold and guaranteed by the central government in terms of principal and interest payments.
Here are some key highlights of the Sovereign Gold Bonds First Tranche for FY23…
a) The SGB Tranche 1 FY23 will be available for subscription from 20th June to 24th June, for individuals, HUFs, trusts, universities and charitable institutions. It must be noted that Non-resident Indians (NRIs) are barred from investing in sovereign gold bonds issue.
b) The SGB will have a tenor of 8 years, but will also offer an option of premature redemption after 5th year. These SGBs are listed on the NSE and the BSE after 6 months of issue closure. However, trading volumes have been extremely thin in SGBs.
c) There are quantitative limits on SGB investments. The maximum an individual can invest in a single financial year is the equivalent of 4 KG of gold while the limit is 20 KG for trusts. However, a family of four can make 4 investments and buy up to 16 KG.
d) The price of the SGB is announced a day ahead of the issue opening and is the simple average of the closing price of gold of 999 purity, published by IBJA for last 3 working days of the prior week. For Tranche 1 FY23, the SGB is priced at Rs5,091 per gram.
e) In addition, the persons investing through the digital mode, get an additional Rs50 discount so the effective price for the digital investments in the first tranche of SGBs will work out to Rs5,041 per gram. This enhances the interest yield for the investor.
f) An attractive feature of this SGB is that it offers interest at the rate of 2.5% per annum, payable semi-annually on the nominal value of the bond. Such interest is fully taxable in the hands of the recipient of the interest.
g) Sovereign Gold Bonds are sold through scheduled commercial banks, SHCIL, CCIL, post offices and on NSE and BSE platforms. Payment banks and small finance banks are not allowed to sell sovereign gold bonds.
h) SGBs held for the full period of 8 years and then redeemed are free of capital gains tax as a special incentive. Any sale or redemption before that would be treated as capital gains on any non-equity asset. It would be taxed at the peak rate of tax applicable in the case of STCG (held for less than 3 years) and at 20% with indexation benefits in the case of LTCG (held for more than 3 years.
i) Like previous tranches of the SGB issue, this tranche can also be held either in demat form or in the form of certificates. More importantly, SGBs are a safe and convenient method to diversify your portfolio with a low correlation asset class.