Sovereign Gold Bond Tranche 7 Review (Oct 2020)

Published on Sunday, October 11, 2020 by Dilip Davda

After six successful SGB scheme for the first half of current fiscal 2020-21, RBI has now announced another bunch of six SGB schemes for the second half.

This latest gold bond issue comes at a time when gold prices have corrected significantly from August highs.

Sovereign Gold Bond Scheme 2020-21 Series VII-Issue opens for subscription on October 12, 2020 and will close on October 16, 2020. This is the 44^th Tranche of the scheme since its launch.

SGB VII scheme price is announced at Rs. 5051 per 1 gram based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period, i.e. October 07 - October 09, 2020.

Government of India, in consultation with the Reserve Bank of India, has decided to offer a discount of Rs. 50/- per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. For such investors, the issue price of Gold Bond will be Rs. 5,001/- (Rupees five thousand and one only) per gram of gold.

Key features:

• Minimum investment in the Bonds shall be one gram with a maximum limit of subscribed shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March) notified by the Government from time to time
• The tenor of the Bond will be for a period of 8 years, with exit option after 5th year to be exercised on the interest payment dates.
• A fixed rate of 2.5 per cent per annum is applicable on the Sovereign Gold Bond scheme, payable semi-annually.
• Redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity for previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.
• The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The Capital Gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond;
• Nomination facility is available up to max. two nominees;
• The securities will be credited in demat accounts of investors after allotment, subject to matching of particulars furnished in the application with the Depositories' records.
• Bonds will be tradable on stock exchanges within a fortnight or on such a date as notified by the RBI.

RBI had said in its annual report 2019-20 that a total of Rs 9,652.78 crore (30.98 tonnes) has been raised through the sovereign gold bonds scheme (37 tranches) since its inception in November 2015. The central bank had issued 10 tranches of sovereign gold bonds for an aggregate amount of Rs 2,316.37 crore (6.13 tonnes) during 2019-20.

(Source RBI website data)

CONCLUSION:

Cash surplus investors may consider investing in this offer with a long term perspective as Gold analysts are very bullish on its upward price trends going forward.