The Reserve Bank of India, vide its notification dated June 15, 2022[1], has announced Sovereign Gold Bond (SGB) Scheme 2022-23. Under this scheme, government securities denominated in grams of gold are offered. They act as a substitute for physical gold. Investors pay the issue price for bonds which will be redeemed for cash on maturity. Bonds are issued by the Reserve Bank of India on behalf of the Government of India
The issuance of the Bonds is set to happen in two phases – Series I and Series II. The subscription period of Series I took place between 20th June – 24th June 2022, with bonds being issued on 28th June. Series II has a subscription period of 22nd August – 26th August 2022, with the date of issuance being 30th August 2022. Residents in India as defined under Foreign Exchange Management Act, 1999 can invest in bonds under this scheme. Eligible investors include individuals, HUFs, trusts, universities, and charitable institutions
Under this scheme, the nominal value of the bond is based on the simple average closing price of gold of 99 purity (as published by the India Bullion and Jewelers Association Limited) of the last 3 business days of the week preceding that of the subscription period.
The issue price for the Bonds during the first subscription period was set at ₹5,091 per gram. The government in consultation with the RBI allowed for a discount of ₹50 per gram to be provided to investors applying and making the payment online – i.e., the issue price for them was set at ₹5,041 per gram
The maturity period set for the Sovereign Gold Bond Scheme is 8 years. Investors will be paid a fixed interest rate of 2.5% per annum on the amount of the initial investment. This will be credited semi-annually to the investor. The option to redeem early is available after the fifth year on the date interest is due. The redemption price then will be based on a simple average of gold 999 pure closing prices (as published by the India Bullion and Jewelers Association Limited) over the preceding 3 business days.
Further, investing in the Sovereign Gold Bond Scheme as opposed to in physical gold is beneficial as investors save on storage, making charges and do not bear the risk of theft or issues of purity. In addition, investors are paid interest payments twice a year (SGBs pay a fixed annual interest rate of 2.5 per cent). The resale value of physical gold is lower when compared to digital forms of purchasing gold (such as the SGB). Bonds issued under the Sovereign Gold Bond Scheme can be used as collateral for loans and also can be traded in the market
[1] https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12340&Mode=0
