Prime Minister Narendra Modi has recently launched three gold schemes on the eve of Dhanteras 2015. These are Sovereign Gold Bond Scheme, Gold Monetisation Scheme (GMS), Gold Coin and Bullion Scheme.

If you consider the import bill, Gold is the second biggest after oil in terms of expenditure. Every year India consumes nearly 1,000 tons of gold. The main aim behind these schemes is to reduce the import of this precious metal.

What are Sovereign gold bonds?

Sovereign gold bonds are government securities issued in forms of papers or certificates. They are basically substitutes for purchasing & holding physical gold. The value of the bond will be associated with the price of gold.

Sovereign Gold Bond SchemeInvestors need to pay the issuing price of the bonds in cash and on maturity they can redeem them in cash. The interest rate of these bonds are linked with the international rate for gold borrowing.

As per the proposal, “An indicative lower limit of 2 per cent may be given but the actual rate will have to be market-determined”.

As they are linked to the gold price, so the investors will get the market value of the gold on maturity of the bonds.

Issuing Authority of Sovereign gold bonds

The Sovereign gold bonds are issued by the Reserve Bank of India on behalf of the Government of India. The bonds are distributed through banks and designated post officesto make the subscription process easier.

During the redemption process, “the price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption”.

Key Features of Sovereign gold bonds

One can avail the Sovereign Gold Bonds either in demat or paper form. If the investors want to exit early, they can do so by trading it on exchanges. The minimum tenure of the bond is of 8 years with option to exit from 5 year onward.

The interest rate of these Gold Bonds are kept as 2.75%.  These bonds will have the sovereign guarantee for the capital invested as well as the accumulated interest on that. The public subscription for Sovereign Gold Bonds is open from 5th to 20th November. Bonds can also be used as collateral for loans.

The capital gains tax treatment will be same for Sovereign Gold Bonds as may be the case of investment in physical gold. According to the department of revenue, indexation benefit will be considered if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption.

How to buy Sovereign gold bonds?

Sovereign Gold Bonds are denominated in grams of gold. So if an investor wants to buy these bonds, s/he can do so by paying the same amount. The minimum investment is kept at 2 grams & capped at 500 gms.

Where to buy it from?

If you are looking for buying these gold bonds, you may apply through scheduled commercial banks and designated post offices. Authorised agents may also collect the application form and submit in the banks and post offices on behalf of you. Some agents like NBFCs, National Saving Certificate (NSC) and others, may act as middleman here.

If you want to buy gold on Dhanteras or for simple investment, Gold sovereign bonds seems to be a better investment option than holding physical gold bars or coins. Investors can enjoy the benefit of investment in gold without the hassle of handling or any storage cost.