Reserve Bank of India rolls out fifth tranche of sovereign gold bonds

NEW DELHI (Scrap Monster): The Reserve bank of India (RBI) has decided to issue fifth tranche of sovereign gold bond scheme. Applications for the bond will be accepted from September 1^st to September 9^th, 2016. The bonds will be issued on September 23^rd. The announcement was made Tuesday after consultations with the Indian government.

The earlier four launches of gold bond scheme had received tremendous response. The combined collection by all these four tranches totaled Rs 2,292 crores, representing 8,064 kilograms of gold. The fourth tranche collection had hit new high of Rs. 919 crore representing 2,950 kg gold. Also, the issue price was fixed at Rs 3,119 per gram of gold. The fourth tranche that had remained open from July 18^th to July 22^nd received 1.95 lakhs applications. According to government authorities, this number is likely to go higher as complete details from collection centres are yet to be included. By seeing the immense response to the fourth tranche, the government had announced that it would roll out more tranches of sovereign gold bond schemes this fiscal year.

According to RBI, the bonds issued by it on behalf of the Government of India will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The bonds will be restricted for sale to resident Indian entities including individuals, HUFs, Trusts, Universities and Charitable Institutions. The bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange.

The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). A self-declaration to this effect will be obtained. Price of the bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the week (Monday to Friday) preceding the subscription period.

Investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment. The tenor of the bonds will be for a period of eight years with exit option from 5th year to be exercised on the interest payment dates. The bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time. The gold bonds will be exempted from capital gains tax on redemption. The gold bonds will have a tenor of eight years with an exit option from the fifth year.

The government had launched the first tranche of scheme in November 2015, which was subscribed for 915.95 kg of gold worth Rs 246 crore. Following the success of the first launch, the government had launched the second tranche in January this year, for which it received a subscription for 3,071 kg gold worth Rs 798 crore. However, the third edition of the scheme had received poor response, with a subscription of 1,128 kilograms of gold amounting to Rs 329 crores.

The sovereign gold bond scheme is considered as an alternative to purchasing metal gold. It intends to reduce the demand for gold in physical form. The scheme issues gold bonds in denominations of 2, 5, 10 grams and other sizes of gold. In order to protect the deposits from gold price volatility, the tenure of the bond is being fixed at minimum 5 to 8 years. Furthermore, the rate of interest will be calculated based on the value of the metal at the time of investment.