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Tue 21st of November 2017

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Sovereign Gold Bonds

·    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.

 

·         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.

Ø  The Sovereign Gold Bonds will be available both in demat and paper form.

Ø  The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.

Ø  They will carry sovereign guarantee both on the capital invested and the interest.

Ø  Bonds can be used as collateral for loans.

Ø  Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

Ø  Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.

Ø  Capital gain tax arising on redemption of SGB to an individual has been exempted. The indexation benefit will be provided to LTCG arising to any person on transfer of bonds. The department of revenue has said that they will consider indexation benefit if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption.

 

·         What are the Know-Your-Customer (KYC) norms?

Know-Your-Customer (KYC) norms will be the same as that for purchase of physical form of gold. Identification documents such as Aadhaar card/PAN or TAN /Passport / Voter ID card will be required. KYC will be done by the issuing banks/Post Offices/agents.

 

·         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 two grams with a maximum buying limit of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.

 

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

The Bonds bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semiannually to the bank account of the investor and the last interest will be payable on maturity along with the principal.

 

·         Who are the authorized agencies selling the SGBs?

 Bonds are sold through scheduled commercial banks and designated Post Offices either directly or through their agents like NBFCs, NSC agents, etc. 

 

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Prelims Question of the Day

With reference to 'Natural Rate of Unemployment', consider the following statements.

1. It is the level of unemployment in an economy that is just consistent with a stable rate of Inflation.

2. It is the unemployment that prevails when all markets in the economy are in equilibrium.

 

(a)1 and 2

(b)2 only

(c)1 only

(d)None of the above

Mains Question of the Day

1.GS-No party in power can afford to ignore Directive Principles of State Policy. Comment.(200 Words)

2.Political Science - Explain the role of non state actors, like IMF, World Bank, European Union and MNCs, in modulating and transforming the broad dynamics of international relations. (250 Words).

3.SOCIOLOGY - What is the impact of Globalization on the structure and mobilization of the working class in India? (250 Words).

Sociology - Thinkers