Gold bond scheme 2015

GOLD BOND SCHEME

The Government of India has launched the Sovereign Gold Bonds Scheme.In this scheme investors will get returns that are linked to gold price, the scheme is expected to offer the same benefits as physical gold. They can be used as collateral for loans and can be sold or traded on stock exchanges.

INTRODUCTION

GOLD BOND SCHEME (BUDGET 2015)

The union finance minister Arun Jaitley has announced several types of gold bonds for monetizing gold in budget 2015. Gold deposit scheme- The customers can deposit

their idle gold under GDS which will provide them safety, interest earnings, tax benefits and a lot more.

Sovereign gold bond scheme- It is kind of a financial instrument to be provided to invest in gold bonds rather than physical gold.

Gold coin with Ashok Chakra- Govt. will also introduce Indian gold coin which will carry Ashok chakra on its face. This will reduce the demand of import of coins.

SOVEREIGN GOLD BOND SCHEMEFEATURES ARE

It is an alternative to buying physical gold. This scheme is expected to offer the same

benefit as the physical gold. Sovereign gold bonds(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 SOVEREIGN GOLD BOND? India imports more than 800 tones of gold every year(world gold council report). More than 90% of our gold demand is fulfilled by import, so it forms the major expenditure towards import bill. Importing more and more gold adds to trade deficit (total value of import-total value of export), ie more revenue going out of India which ultimately leads to rise in Current Account Deficit(CAD). Higher the CAD hampers the economic growth.

HOW DOES SOVEREIGN GOLD BONDS WORK?

you invest rupees today at the international price of gold, get an additional two percent (or a bit more) interest annually, and when you exit after five or seven years, you get the latest price of gold plus interest - and the same capital gains treatment as physical gold assets.

IMPLICATIONS One, the market risk is yours. Two, the scheme will not appeal to

those who want physical gold for jewellery or for future use

Three, the two percent interest payable annually means holding sovereign gold bonds will be more rewarding than gold ETFs (exchange traded funds).

Four, the scheme could appeal to savers who want physical gold sometime in the future.

Five, the government will have to bear the currency and market risks - which means it can both borrow cheap (if gold prices fall) or expensively.

ELIGIBILITY TO INVEST IN THE SGBS Persons resident in India as defined under

Foreign Exchange Management Act, 1999 are eligible to invest in SGBs.

Eligible investors include individuals, trusts, universities, charitable institutions, etc.

Minors can also invest but the application on behalf of the minor has to be made by his / her guardian.

BENEFITS OF SGBS The Sovereign Gold Bonds will be available

both in demat and paper form. The tenor of the bond is for a minimum of 8

years with option to exit in 5th, 6th and 7th years.

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

Bonds can be used as collateral for loans. Bonds would be allowed to be traded on

exchanges to allow early exits for investors who may so desire.

In Sovereign Gold Bonds, capital gains tax treatment will be the same as for physical gold for an 'individual' investor. 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.

AIMS OF SGBS The scheme aims at reducing the import of

gold. Out of the 1,000 tonnes of gold consumed every year, most of it is imported. Gold is the second highest expense on the import bill after oil.

In the first instalment the government has proposed that it would issue bonds to the tune of around 13,500 crore.

This is almost equal to 50 tonnes of gold. It will be issued in denomination of

5,10,50,100 grams of gold or other denomination.

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.

AUTHORIZED AGENCIES SELLING THE SGBS

Bonds are sold through scheduled commercial banks Like SBI,PNB etc

The application form will also be provided by the designated Post Offices.

It can also be downloaded from the RBI’s website. Banks may also provide online application facility.

The bonds can also be issued by non-banking finance companies, National Saving Certificate (NSC) agents for a fee.

CHALLENGES Most of us prefer buying physical gold to paper

gold. It would be very challenging to make individuals switch from buying physical gold to paper which promises gold like returns.

The duration of bond can be a very important factor.

How capital gains on these bonds are treated , is also a very important factor. ( from taxation point of view)

CHALLENGES If gold prices rises steeply, banks may get

affected, the repayment burden increases. So, they may have to cover this risk either by hedging or by taking insurance cover.

The minimum tenure of the deposit can be 1 year.

Banks may have to provide ‘pre-mature’ redemption facility.

GOLD BOND SCHEME A HUGE HIT The first tranche of sovereign gold bonds that

closed on November 20 received an encouraging response despite falling gold prices, suggesting that the scheme may be successful in reducing imports of the metal. The scheme, which opened on November 5, received 63,000 applications for 917 kg of paper gold worth Rs 246 crore. "Excellent response for an innovative product," Economic Affairs Secretary Shaktikanta Das tweeted. 

RBI POSTPONES ISSUE DATE OF SGBS Large number of applications has been

received by banks and post offices. To enable smooth uploading of applications into RBI's e-Kuber system, particularly by the post offices, it has since been decided to shift the issue date of the Sovereign Gold Bond from November 26, 2015 to November 30, 2015. 

RBI further said that as the settlement date has now been shifted to November 30, the interest at prevailing savings bank rate "shall be paid" from the date of realisation of payment to the new settlement. 

Investors will get an annual fixed rate of 2.75 per cent payable semi-annually on initial value of the investment.

They will also get capital gain if price of gold appreciates while holding the bonds.

Capital gains will be taxed as in case of physical gold holdings. A short-term capital gain tax will apply if you sell within three years.

Benefits for Investors in SGBs

BENEFITS FOR INVESTOR(CONTINUE) It will be possible to sell and trade the

bonds on exchange, in case the investor want to redeem them before maturity.

Since there is no regular income from investment in gold, the income will not be subjected to tax.

BENEFITS TO BANKS IN SGBS Bank can have another stream of income

through gold monetization deposit scheme. Banks have the freedom to set their own

interest rates on the gold deposit. Banks can also use the deposited gold to make

coins and sell them to the public. There is also a proposal to allow the banks to

use the deposited to meet statutory requirements like CRR and SLR.

THANK YOUBYPOOJA TAYAL FA15040SHIPRA GUPTA FA15057RAJAT BANSAL FA15044BHAWNA GUPTA FA15014VAISHALI SINGH FA15059DEEPAK AGGARWALL FA15019

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