Gold Bond Scheme Yojana
India is one of the largest in terms of gold consumption. To satisfy the want for gold, India has to import around 800 to 1000 tons of gold every year. A mere estimation reflects, around 20,000 tons of gold are stocked by traders and household, and these are neither being traded nor monetized.
In order to reduce stocking of gold, Finance Ministry has introduced an alternate method which was announced in union budget 2015-16. Sovereign Gold Bond would act as a financial asset, which can be used as an alternate option of purchasing and stocking gold. Rate of interest would be fixed on this bond. On Maturity it can either be redeemed in cash or in gold.
The main objective behind the introduction of such scheme arose to reduce the demand of material gold. Apart from this, shifting a part of approx. 300 tons of bars and coins purchased for investing into demat gold bonds every year forms another reason to bring this scheme into existence.
These Gold Bonds can be purchased through cash, like gold and would carry the prevailing market price of the gold during purchase.
RBI will be issuing these bonds. Any interested agency has to pay distribution cost involved and a sales commission to issue these bonds in the market.
There is a cap on the limit of purchase of these bonds. An entity is allowed a maximum of 500gms worth of Gold Bond every year. Only resident Indian would be able to own Gold Bonds. These bonds can be purchased in both demat or paper document.
The rate of interest on these bonds will be linked to the international rate of gold borrowing. The bonds will mainly be available in denominations of 2, 5, 10, 50 or 100 grams initially.
In order to avoid short-term fluctuations in gold rates, the total tenor of these bonds are kept minimum 5 to 7 years, to protect the investors.
Bonds can be used collateral to Loans. These sovereign Gold Bonds can easily be sold or traded in the commodity market. The tax treatment will be same for the investors investing either in gold bonds or material gold. All the risk will be borne by the government due to fluctuations in gold price at the time of issuance, however upside gains and downside risks will still be the investor’s responsibility. Bonds would come up with sovereign guarantee. KYC rules would be similar like that of gold.
To make easy availability of the bonds, marketing is being done through post offices and by various local brokers or agents, in lieu of commission.
This scheme appears to be promising. Investors would find it beneficial to invest in gold bonds rather that stocking material gold in lockers.