Government fixed Rs 3,119 per gram as the issue price for the 4th tranche of Sovereign Gold Bonds (SGB) scheme which opens for subscription tomorrow.
The government has reduced the minimum subscription denomination to 1 gm in the 4th tranche, which would be open for investment by individuals and institutional investors from July 18-22.
“To attract small investors, the minimum subscription has been reduced to 1 gm, although the maximum remains at 500 gm per person/institution,” the finance minister said in a statement.
Earlier, the minimum denomination was 5 gm.
“SGB can now be purchased from NSE and BSE, besides all Bank branches, select Post Offices and the Stock Holding Corporation of India Limited (SHCIL),” the ministry said.
The first 3 tranches had attracted an investment of Rs 1,318 crore, equivalent to 4.9 tons of gold at the then prevailing prices. With the added features, it is expected that the 4th tranche of SGB would garner much higher investment.
The 4th tranche of the SGB scheme is the first series in 2016-17.
SGB gives an interest of 2.75 per cent per annum, payable every six months on initial investment and does this without the attendant risk of theft/loss or impurities associated with physical gold.
The investment in SGB is also eligible for Statutory Liquidity Ratio of Banks.
SGB is eligible to be converted into Demat form and can be used as collaterals for availing loans.
It shall be repayable on the expiration of eight years from the date of the issue and premature redemption is permitted after 5th, 6th and 7th years from the date of issue of SGB.
The government had launched the first tranche of sovereign gold bond scheme in November for which it got subscription for 915.95 kg of gold worth Rs 246 crore. In January, it came out with the second tranche and received subscription for 3,071 kg gold amounting to Rs 798 crore.
The funds raised through the bonds will form part of the government’s market borrowing programme.
Further, Union Budget 2016-17 has proposed that redemption of sovereign gold bonds by an individual be exempt from capital gains tax.
It also provided that long-term capital gains arising to any person on transfer of sovereign gold bonds shall be eligible for indexation benefits.
Under the scheme, gold bonds are issued in denominations of 1 gram, 5 gm, 10 gm, 50 gm and 100 gm for a term of 5-7 years with a rate of interest to be calculated on the value of the metal at the time of investment. The scheme has an annual cap of 500 grams per person.
Prime Minister Narendra Modi on November 5, 2015 had launched the scheme to wean investors away from physical gold.
India imports about 1,000 tonnes of gold every year and the precious metal is the second-biggest constituent of the import bill after crude oil.
The scheme is aimed at reducing demand for gold in physical form by encouraging people to buy the commodity in demat or the paper form.