Sovereign Gold Bond Scheme Tranche 8: Planning to subscribe? Know these 10 frequently asked questions about this scheme first

Sovereign Gold Bond Scheme 2021-22 Series VIII has opened for subscription for five days from November 29, 2021 to December 03, 2021. The issue price for SGB Tranche 8 has been fixed at Rs 4,791 per gram of gold. To promote digital transactions, the Government of India has also decided to offer a discount of Rs 50 per gram on the nominal value to those investors applying online and the payment against the application is made through digital mode.  

“The Sovereign Gold Bond is an effective way of taking exposure to gold. There is no storage cost, as the holding format is digital, plus the investor stands to gain a 2.5%/pa interest. The government has raised over Rs 31,000 crore of funds via the scheme, " said Nish Bhatt, Founder & CEO, Millwood Kane International on SGB Tranche 8.  

SGB is a favored route for the government to convert all gold investments into a digital mode, which will help keep the deficit under control and provide support to the currency, " said Bhatt.  

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As the Sovereign Gold Bond Scheme 2021-22 Series VIII has kicked off, the Reserve Bank of India answers all frequently asked questions about this scheme. 

1. What is Sovereign Gold Bond (SGB)? Who is the issuer? 

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India. 

2. Why should I buy SGB rather than physical gold? What are the benefits?  

The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc. 

3. Are there any risks involed in investing in SGBs?  

There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.  

4. Who is eligible to invest in the SGBs?  

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.  

5. Can a minor invest in SGB?  

Yes. The application on behalf of the minor has to be made by his/her guardian. 

6. What is the minimum and maximum limit for investment?  

The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions. 

7. What is the rate of interest and how will the interest be paid?  

The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal. 

8. What will I get on redemption?  

On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. 

9. Can I encash the bond anytime I want? Is premature redemption allowed?  

Though the tenor of the bond is 8 years, early encashment/redemption of the bond is allowed after fifth year from the date of issue on coupon payment dates. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor. 

10. Can I use these securities as collateral for loans? 

Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies (NBFC). The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Granting loan against SGBs would be subject to decision of the bank/financing agency, and cannot be inferred as a matter of right. 

Gold Outlook 

Millwood Kane International founder Nish Bhatt said after hitting a 9-month high earlier in the month, gold prices were trading in a narrow range for the past few sessions. "The fears surrounding the new variant of virus has raised fresh concerns, leading to a softness in USD, pushing gold prices higher. But the improving economic scenario, inflation levels around the world, likely rate hikes to contain inflation is likely to put pressure on gold," he said.   

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)