Sovereign Gold Bond Scheme

  • In essence, a Sovereign Gold Bond is a government issued security which represents a certain weight of gold.
  • Owning a gold bond of a certain weight is akin to owning that quantity of gold, albeit in a different form.
  • This scheme which was launched in 2015 aims to reduce the demand for physical gold, thereby keeping a tab on gold imports and utilising resources effectively.
  • With the Reserve Bank of India issuing these gold bonds, it brings in transparency and trust, providing an avenue wherein people can own gold without having to worry about its storage or safety.

How does Sovereign Gold Bond Scheme operate?

  • Under the Sovereign Gold Bond Scheme, the Reserve Bank of India will issue the bonds on behalf of the Government of India.
  • The bonds will be sold at post offices and banks and issued in denomination of gram. They will issue these bonds on payment of money.
  • Later on, the bonds will be connected to the price of gold.
  • Investors have to pay the bond price in cash.
  • From one person, the Sovereign Gold Bond Scheme would accept a minimum investment of 2 gm gold and a maximum investment of 500 gm in a single fiscal year.
  • The bonds will pay a yearly interest of 2.75% to investors.
  • Interest would be paid semi-annually based on the initial value of investments issued for the year 2015-16.

Features and Benefits of Sovereign Gold Bond Scheme

Some of the unique features and benefits of this scheme are mentioned below:

  • Gold denomination – These bonds will be issued in multiple weight denominations, starting from 1 gram onwards, providing flexibility in terms of purchasing gold which suits the needs of an individual.
  • Format – One has an option to hold these bonds either in paper or demat form, whichever is convenient to an individual.
  • Flexibility – Investments in this scheme are flexible, with one having an option to choose the amount he/she wishes to invest.
  • Interest – Investments in this scheme are eligible to earn interest every year.
  • Safety – There is no need for storage or safety of gold under this scheme, as the gold isn’t physically given to an investor immediately.
  • Purity – Since it is backed by the government, one is assured of purity of gold when they invest in the scheme.
  • Maturity – This scheme has a maturity period of 8 years.
  • Gift/transfer – Investors can choose to gift or transfer these bonds to others, provided they meet the necessary eligibility criteria.
  • Premature withdrawal – Premature encashment of these bonds is allowed after 5 years of issue.
  • Loan collateral – Investors can use these bonds as collateral against loans.
  • Application – The application process is simple and fast, with banks and post offices permitted to provide this service.
  • Payment modes – One can opt to purchase these bonds through multiple payment modes, with cheques, cash, DDs or electronic transfer accepted.
  • Nomination – This scheme has a provision for nomination, adhering to the rules of the land.
  • Tradable – Investors can trade these bonds on stock exchanges, subject to notifications of the Reserve Bank of India.