Question

The Sovereign Gold Bonds Scheme was announced in the Union Budget 2015-16. The scheme will help in reducing the demand for physical gold by shifting a part of the estimated 300 tons of physical bars and coins purchased every year for Investment into gold bonds.

Which of the above statement(s) is/are incorrect?

• A. Only 1, 3&4
• B. Only 1, 2&3
• C. Only 2, 3&4
• D. All of the above

Answer 1

The correct option is A

Only 1, 3&4

The salient features of the scheme are:-

1. Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold.
2. Bonds will be issued on behalf of the Government of India by the RBI. Thus, the Bonds will have a sovereign guarantee. The issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by Government.
3. The bond would be restricted for sale to resident Indian entities. The cap on bonds that may be bought by an entity would be at a suitable level, not more than 500 grams per person per year.
4. The Government will issue bonds with a rate of interest to be decided by the Government. The rate of interest will take into account the domestic and international market conditions and may vary from one tranche to another. The bonds will be available both in demat and paper form.
5. The bonds will be issued in denominations of 5,10,50,100 grams of gold or other denominations.
6. The tenor of the bond could be for a minimum of 5 to 7 years, so that it would protect investors from medium term volatility in gold prices. Since the bond, will be a part of the sovereign borrowing, these would need to be within the fiscal deficit target for 2015-16 and onwards.
7. Bonds can be used as collateral for loans. The Loan to Value ratio is to be set equal to ordinary gold loan mandated by the RBI from time to time. Bonds to be easily sold and traded on exchanges to allow early exits for investors who may so desire.
8. Capital gains tax treatment will be the same as for physical gold for an 'individual' investor.

On maturity, the redemption will be in rupee amount only. The rate of interest on the bonds will be calculated on the value of the gold at the time of investment.