The Reserve Bank of India (RBI), after consultation with the government, recently announced the issue dates of the sovereign gold bond (SGB) scheme 2020-21. The first tranche (2020-21 Series I) for subscription will open on April 20 and close on April 24. The bonds will be issued on April 28. The sixth tranche (2020-21 Series VI) has been scheduled for August 31-September 4.
In view of this, let's understand what is SGB and how it works:
It comprises government securities denominated in gold wherein investors are required to pay the issue price in cash. The bonds are redeemed in cash on maturity.It bears interest at the rate of 2.5 percent per annum on the amount of the initial investment.These bonds are sold through scheduled commercial banks (except small finance banks and payment banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd, according to RBI.These are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions.The issue price of these bonds are fixed in Indian rupee on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Ltd for the last 3 working days of the week preceding the subscription period.The tenor of the bond are for a period of 8 years with exit option after fifth year to be exercised on the interest payment dates.The minimum permissible amount allowed for investment in SGB is one gram of gold. The maximum limit of the subscription is four kilograms for individuals and HUFs, and 20 kilograms for trusts and similar entities per fiscal year (April-March), which is notified by the government from time to time.
