Sovereign gold bonds are RBI mandated certificates issued against grams of gold, allowing individuals to invest in gold without the strain of safekeeping their physical asset. Sovereign gold bonds act as a secure investment tool among individuals, as gold prices are less susceptible to market fluctuations. Owing to the popularity and widespread demand for gold, prices of such assets tend to rise significantly over time, a highly prospective investment avenue.
As these bonds are issued by the RBI under Government of India stocks, a particular window is pre-set for subscription, during which a sovereign gold bond scheme is issued in the name of investors in tranches. Generally, the RBI announces issuance of latest sovereign bonds in a press release every 2-3 months, with a one week window during which individuals can subscribe to this scheme.
A holding certificate is issued in the name of an investor upon successful purchase of a sovereign gold bond.
Features of Sovereign Gold Bonds
- Updated price – Prices of a sovereign gold bond 2020 is calculated through a simple average of the closing prices of 999 purity gold for the last 3 days set by the Indian Bullion and Jewellers Association Limited (IBJA).
- Periodic interest pay-outs – A coupon rate of 2.5% per annum is associated with the sovereign gold bond scheme, which is disbursed half-yearly to investors.
- Fixed tenor – Gold bonds are issued for a period of 8 years, with premature withdrawal permissible from the 5th year. Also, individuals can sell their respective securities in the secondary market at the market rate of gold.
- Premature withdrawal – Individuals willing to cash-in their investment can do so after a mandatory holding period of 5 years. This payout benefit can be exercised for the 5th, 6th, and 7th year of bond tenor, and will be processed on the interest disbursement days.
- Resale – The Sovereign gold bond scheme 2020 can be traded in the secondary market after 14 days from an initial subscription date, subject to a notice published by the RBI. Prices at which these bonds are transacted depend on the prevailing gold prices on the stipulated date, as well as its corresponding demand and supply in the stock market. Consequently, for transactions in the stock market, a holding certificate has to be digitised and stored in a Demat account of an investor.
- Quantity of subscription – Subscriptions are to be made in Sovereign bonds as grams of gold. A minimum investment equivalent to the price of 1 gram of gold has to be made, while the maximum limit is equal to the value of 4kg of gold for individuals and Hindu Undivided Families (HUF). For corporations and trusts, the upper limit is set at 20kg.
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