Understanding the Sovereign Gold Bond (SGB) Scheme launched by RBI (2020-21)

Image source- https://www.goodreturns.in/gold-rates/#Weekly+%26+Monthly+Graph+of+Gold+Price+in+India

The graph above displays the recent trend in the price of Gold India witnessed since Honorable Prime Minister of India, Shri Narendra Modiji announced complete lockdown in India from 24^th March, 2020 in order to tackle the menace caused by the rapidly spreading COVID-19. With industries shutting down and a pause on all the non-essential economic activities Gold prices started witnessing an upward trend. There are many factors both domestic and international that affect the Gold prices in India.

Encouraged by such a trend Government has decided to raise funds by issuing SOVEREIGN GOLD BOND (SGB). The Reserve Bank of India on 13^th of April, 2020 announced that it would launch SGB Scheme (2020-21) on behalf of Government of India in six tranches starting 20^th April, 2020 as depicted below-

S. No.	Tranche	Date of Subscription	Date of Issuance
1.	2020-21 Series I	April 20-24, 2020	April 28, 2020
2.	2020-21 Series II	May 11-15, 2020	May 19, 2020
3.	2020-21 Series III	June 08-12, 2020	June 16, 2020
4.	2020-21 Series IV	July 06-10, 2020	July 14, 2020
5.	2020-21 Series V	August 03-07, 2020	August 11, 2020
6.	2020-21 Series VI	Aug.31-Sept.04, 2020	September 08, 2020

SGB Scheme is a very easy to understand concept. RBI has defined it as the denomination of government issued securities in grams of gold. It means holder of SGB security need not purchase gold in its physical form but he/she may still hold the possession of corresponding quantity of gold as certified by the RBI in the SGB issue certificate. The person purchasing the bond need to pay the cash to get the bond issued which can be redeemed upon maturity and/ or as per the clause defined in the particular bond.

The very 1^st SGB in India was launched in November, 2015.

Following are the key takeaways from this scheme-

• It is a safer and lesser expensive option as cost related to security, making and storage of physical gold is eliminated.
• Uncertainty pertaining to purity of the metal is disregarded.  
• The SGB Bond can be traded on demat account as well.
• Following are eligible for the scheme- individuals, HUFs, trusts, universities and charitable institutions. Joint holding is also allowed.
• The main advantage under this scheme is that it can be issued to a guardian on behalf of a minor provided he/ she fulfills the eligibility under persons resident in India as defined under Foreign Exchange Management Act, 1999 as described above.
• An investor is supposed to have a unique investor ID, meaning the investor can not by any means apply for bonds under 2 different entity with his/ her testimonial i.e. PAN card.
• Minimum and maximum limit has been set for a particular financial year as mentioned below-
  • Individual- [1gm, 4000gm]
  • Hindu Undivided Family (HUF)- [1gm, 4000gm]
  • Trust- [1gm, 20000gm]
  • In case of joint holding, the limit shall apply to the 1^st holding.
• Interest rate for the bond has been fixed at 2.5% per annum which shall be paid semi-annually.
• SGB can be purchased from the agencies authorized by RBI- offices or branches of Nationalized Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorized stock exchanges
• Maturity period for the bond is 8 years. However, there is an option take an exit from the bond from the onset of 5^th year from the date of issue of the bond.
• The price of gold for the relevant tranche will be published on RBI website two days before the issue opens.
• Another advantage is that this is the safest investment option as upon maturity we are paid both the principle amount amounting to the nominal value of Gold at that particular time along with the interest.
• The capital gains tax arising on redemption of SGB to an individual has been exempted. And same can be used as a collateral to secure loans from banks.

Thus, investing in SGB is a very secure option as it is evident that if one invests today for sure the price would definitely be higher in the 5^th year from now.

For more detailed understanding, I will encourage the readers to please visit the official notification issued by the RBI at-

https://m.rbi.org.in/Scripts/FAQView.aspx?Id=109

https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=49665