Second gold bond scheme another attempt to lure hoarded yellow metal

The government has come up with the second tranche of it, which is open for subscription from January 18 through January 22.

The much-vaunted sovereign gold bond scheme of the government didn't see great response in the first tranche as it drew just 63,000 applications for a total of Rs 246.20 crore worth of bonds for 917 kg of gold.

Now, the government has come up with the second tranche of it, which is open for subscription from January 18 through January 22. The bonds will be issued on February 8, 2016. The issue price of the bond has been fixed at Rs 2,600 per gram of gold.

The maturity period of the same is eight years with exit option from fifth year to be exercised on the interest payment dates. These bonds will be tradable on the exchanges. The minimum subscription limit for the bond is 2 gm of gold while the maximum is 500 gm per person in a fiscal year (April- March). It is available in units of 1 gm of gold and multiples thereof.

The bonds will invite capital gains at 20 per cent after indexation, if held for more than three years. Investors will get fixed interest at 2.75 per cent per annum payable semi-annually on initial value of investment in addition to investment in gold as an asset class. It also allows indexation benefit while calculating capital gains, which will be charged at a concession rate of 20 per cent after considering indexation benefit, if held for more than three years.

Investors can also use these bonds as collateral for availing loans. These bonds are free from issues like making charges and purity which is of concern while you buy gold in jewellery form. Also there is no risk and costs of storage since these bonds will be held in demat form, unlike physical gold. These bonds are a better alternative to Gold ETFs as there are no recurring annual expenses in these bonds. These bonds will also be available for investment in FD/Bonds home page in the login section of our website.

The Modi government has been pushing hard to lure an estimated 20,000 tons of gold hoarded in households and temples into the banking so as to trim the import bill of the world’s second biggest gold consumer after China.

But the major problem it has been facing is due to the tradition that Indians generally consume and not invest in gold. The metal is deemed auspicious and has ornamental and sentimental value. That is the key reason the scheme has not found many takers. Even demand for ETFs did not meet expectations initially and the product is still gaining ground. Investors find comfort in physical gold even if it is in the form of gold coins. There are also concerns over the recent global slide in gold prices.