Sovereign Gold Bond Scheme 2023-24

Background:

The Sovereign Gold Bond Scheme was introduced in 2015 by the Government of India as an alternative investment option for individuals looking to invest in gold.
Purpose: The scheme aims to reduce the demand for physical gold and shift a part of the domestic savings used for the purchase of gold into financial savings. It also aims to provide individuals with an opportunity to invest in gold without the need for physical possession.
Issuance: The Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The bonds are denominated in grams of gold, with a minimum investment size of one gram and a maximum limit of subscription per fiscal year set by the government.
Tenure: The tenure of the Sovereign Gold Bonds is generally eight years, with an exit option available after the fifth year. Investors can choose to exit the scheme after the fifth year on interest payment dates.

Linkage:

Gold Exchange-Traded Funds (ETFs): Several countries, including the United States, Australia, Canada, and the United Kingdom, offer gold ETFs. These are investment funds traded on stock exchanges that aim to track the price of gold.
Gold Savings Plans: Some countries, such as Germany, Switzerland, and Singapore, offer gold savings plans or accounts. These plans allow individuals to invest in gold through fixed monthly contributions regularly. The invested funds are used to purchase physical gold, which is stored securely on behalf of the investor.
Gold Certificates: Certain countries, including Switzerland and the United Arab Emirates, offer gold certificates or allocated accounts. These systems allow individuals to purchase gold and hold it in allocated storage, typically with a bank or a precious metals provider.

Current Scenario:

Recently, the Government of India, in consultation with the Reserve Bank of India, has decided to issue Sovereign Gold Bonds (SGBs) in tranches for 2023-24.
The issue price of the Bond during the subscription period shall be Rs 5,926 (Rupees Five Thousand Nine Hundred Twenty-Six only) per gram, as also published by RBI in their Press Release dated June 16, 2023.
The Government of India, in consultation with the Reserve Bank of India, has decided to allow a discount of Rs 50 (Rupees Fifty only) per gram from the issue price to those investors who apply online, and the payment is made through digital mode. For such investors, the issue price of Gold Bond will be Rs 5,876 (Rupees Five Thousand Eight Hundred Seventy-Six only) per gram of gold.

Impact:

The price of SGB will be fixed in Indian Rupees on the basis of a simple average closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited.
SGBs will be sold through Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited, Clearing Corporation of India Limited, designated post offices and National Stock Exchange of India Limited and Bombay Stock Exchange Limited, either directly or through agents.
The investors will be compensated at a fixed rate of 2.50% per annum, payable semi-annually on the nominal value (face value or stated value).
The interest on SGBs shall be taxable as per the provision of the Income Tax Act, 1961. The capital gains tax arising on redemption of SGB to an individual is exempted.