New Delhi, February 23, 2017

The government will launch the seventh tranche of sovereign gold bonds on Monday, offering a 2.5% annual interest to investors. Applications for the bond will be accepted from February 27 to March 3, the finance ministry said on Thursday. The bonds will be issued to eligible applicants on March 17. The investors will get the interest payable semi-annually on the nominal value of investment. The latest tranche of bonds is part of the government’s efforts to garner as much as Rs 3,809 crore from all the three gold schemes this fiscal. The sovereign gold bond, gold monetisation scheme and Indian gold coin were launched by Prime Minister Narendra Modi during 2015, as the government wanted to discourage imports of the precious metal and curb their debilitating impact on trade balance.

The gold schemes are still far from a roaring success. The government had budgeted to mop up Rs 10,000 crore from the three schemes in 2016-17 but had to settle at Rs 3,809 crore in the revised estimate that is equivalent of just around 2% of the country’s annual consumption. Nevertheless, the schemes provide more choices to investors and could potentially be a massive success if they are designed even better and once investors are made aware of their many benefits, say analysts.

The Budget has set a target of Rs 5,000 crore from these gold schemes for 2017-18. In 2015-16, the government had mopped up Rs 1,318 crore from the gold schemes.

The bonds will be sold through banks, Stock Holding Corporation of India, designated post offices, the National Stock Exchange and the Bombay Stock Exchange.

The tenor of the bonds will be for a period of eight years, with exit option from 5th year to be exercised on the interest payment dates, according to the statement. Payment for the bonds will be through cash (but only up to a maximum of Rs 20,000) or demand draft or cheque or electronic banking. The issue price of the gold bonds will be Rs 50 per gram less than the nominal value, the finance ministry said.

The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year. A self-declaration to this effect will be obtained.

In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only. Investors have been exempted from any tax on capital gains from the redemption of such gold bonds. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond. Bonds will be tradeable on stock exchanges from a date to be notified by the RBI.

The price of the bonds will be fixed in rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association for the week (Monday to Friday) preceding the subscription period.

The gold bonds can also be used as collateral for loans. The loan-to-value ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.

[The Financial Express]