Pradhan Mantri Gold Scheme
Sovereign Gold Bond Scheme
The Sovereign Gold Bond scheme is an initiative to replace Gold with bonds. These bonds would be issued by the Government of India and applications will be accepted from 5 November, 2015. All the authorised banks and post offices would issue the Gold bonds from 26 November, 2015.
Who all can invest in the Sovereign Gold Bond Scheme?
All the residents of India, HUF, trusts, Universities and charitable institutions can buy these Gold bonds. These Gold bonds will be available in multiples of 1 gram of Gold. The lock-in period or minimum time for these bonds is 5 years and the total period is of 8 years. The minimum quantity of gold bonds available is 2 which equalises to 2 grams of Gold. Whereas, the maximum limit allotted for one person is 500. A verification process for self- declaration is a part of the mechanism.
Rate of Interest
The rate of interest of Gold Bond Scheme is fixed for 2.75% per annum calculated on the principal amount and will be payable after every 6 months. The price of these Gold bonds would be set according to the average of the Gold price in the prior week before investing and then the amount will be converted to Indian currency. After the maturity of the bonds the payment would be made through cash, DD or cheque along with a Certificate issued for the investor. The amount can also be used for Demat accounts.
Should I Invest in Gold Bond Scheme
This is a tricky question, well if you were thing of gold as an investment then this is the best scheme ever for you. You will all the benefits that you were getting with a fixed interest rate of 2.75% as of FY 2015-16. This is a win win situation since you were getting nothing of this sort in past. I haven’t heard of this kind of scheme anywhere else in the world.
In past if there was no rice in price for physical gold then your money invested was getting nothing. But now you would be getting a fixed income from it. Savings bank on an average gives you an interest of 4% only (this is risk free). But now in Gold bond scheme you will get a fixed return (2.75%) plus all the appreciated benefits.
Gold has always been considered as the best investment in recession. But investing in such instrument in the past had never earned any returns. But now with Gold Bond Scheme this wont be true.
Tax on returns of Gold Bond Scheme
Yes you will have to pay taxes on this returns you have earned in this scheme. Profit would be taxed 30% if you would exit before 3 years and it would be 20% if you would exit from this scheme after 3 years.
Features Of Gold Bond Scheme
Gold bond scheme or GBS is a scheme of investment on Gold, yet it doesn’t include physical gold. Like the physical gold, estimation of the investment increments with the ascent in the gold costs. You don’t have to contact bullion market or a jeweler to sell your gold bonds. The gold bonds provide you the advantage to invest on gold, yet you never possess the gold physically. You just possess bond papers that likewise can be in the computerized structure.
Sovereign Gold Bonds versus Gold ETF
Both the plans are connected with Gold and upheld by prestigious caretakers accordingly the security and the virtue is ensured. In any case, there are few significant contrasts which makes the recently propelled SGB Scheme prevalent than the Gold ETF.
Gold Bond won’t just give capital appreciation; an ostensible 2% – 3% yearly interest rate will likewise be provided to the investors in Gold form.
It is not pertinent in the Gold ETF. You’ll just acquire the distinction in the measure of selling and purchasing rate i.e. capital appreciation only. No additional advantage is connected with the GETF.
Gold Bond versus Gold Funds
GBs have been a late participant. It is another method with a time span of eight years. In any case, investors are able to choose untimely reclamation after fifth year. These securities are qualified for 2.75% of interest rate to be paid semi yearly on the introductory estimation of the actual sum. RBI has settled the amount at 2684 rupees for every gram. One can also invest into least 2 grams and the most extreme 500 grams for each individual per monetary year. Being a sovereign bond which pays interests as well as other additional benefits on gold, gold bonds are set above the gold funds. Gold funds offer small return than gold bonds. Gold bond offers 2.75% of return well beyond the profits offered by the gold funds.
Gold Bond Versus Physical Bond
One of the most imperative points of preference in gold bond is the premium which government will compensate you – about 2.75% on the introductory investment or 63.50 rupees for every gram. Obviously, the primary crib from the investors is that the sum might be remunerated on the primary investment cost and not on the rising cost of the gold bond. For example, if the gold cost goes above 5,000 rupees for every gram then the yearly rate of interest paid to the investors would tumble to 1.35%. Nonetheless, as, physical gold won’t gain any premium, investors can consider gold bonds. Market specialists, as well, support gold bonds at the present. Regardless of the possibility that physical gold is less expensive by 4%, gold bond schemes are still a superior decision as an individual gets 2.75% as yearly interest.
In the market, as you purchase a gold coin, you wind up paying higher charges of making, which is a real downside for the scheme of Gold Deposit. The banks which run these schemes would want to get gold from the internation business sector at 1% interest, instead of working with the countless domestic investors. For instance, if any bank accepts the gold deposit of 100 grams from someone on January 1, 2012 when the duty was about 2%, this gold may be sold/valued with a particular market participant on February 27, 2012 at the rate of that time and if the import rate increases then the bank will be in loss because the bank has a liability of maturity to restore the gold deposit at domestic rates.
Gold Bond Versus GMS
The starting expense of advertising and monetary record expenses were money related burden on banks and, in that capacity, they were not inspired by advancing the GDS. On the off chance that the GMS is introduced, similar to a SGB by the government with fundamental tax exception then the GMS would be a tremendous achievement. But the success and easy to handle gold bond scheme became a successful venture. Most of the people prefer to invest on gold bonds because of its flexible features and high return.
|Benefits||Gold Bond||Gold ETF||Gold Fund||Physical GoldBond||GMS|
|Preference of Specialists||Yes||No||No||No||No|
Gold Monetisation Scheme
The Gold Monetisation Scheme is an initiative for the growth of the national capital by our Prime Minister and will be effective from 5th November 2015. The new Gold Monetisation scheme will replace the present Gold deposit scheme which was launched in 1999. But people who have already invested in the old scheme shall reap their benefits till the maturity of the earlier schemes.
Who can benefit from the scheme?
All the citizens and residents of India, Hindu Undivided Families, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can invest in this scheme and benefit from it. Anyone can invest minimum 30 grams of Gold at a time and there is no maximum limit set for investing as of now by the Government of India.
What is the investment tenure for this scheme?
The banks accept the gold deposits for varied time frames. There is a short term period for 1-3 years, medium time period for 5-7 years and long term deposit for 12-15 years. Investments for short terms will be accepted by the authorised banks while investments for the rest two time terms shall be deposited with the government. There would be a minimum period in which the investors cannot withdraw the gold deposits and even in case of premature withdrawal (in case of short term deposits), there would be a penalty charged. The rate of interest for short and medium time periods will be 2.25% whereas for long tenure investments will be 2.5%. The interest will be calculated from the day the gold is accepted by the bank or from the day gold is converted. Till the maturity of the scheme the banks would keep the gold deposits safely under their custody. For opening the Gold deposits accounts the investors would require the same documentation and formalities as in case of any other account opening.
This Gold is then used by IGC or sold to jewelers. Even the banks who are a part of the GMS chain buy the gold deposits. This gold is further auctioned and bought by the RBI and credited to the account of the Central Government. Further this Gold is bought by the banks and other authorized entities for hedging and risk management. The guidelines issued by the RBI are abided to for hedging. The motive of the GMS is to circulate the gold held by the citizens of India for the productivity and growth of the country, so that importing of Gold can be minimized.
The different factors that you need to know about sovereign gold bonds
It has been notified by the government of India that the third tranche of sovereign bonds shall be kept open from 8th to 14th March. But before we delve deep into the details of the third tranche of sovereign gold bonds, it is essential to know certain factors about the sovereign gold bonds and how do these bonds work. The Sovereign Gold Bond is a scheme that has been launched by the government of India in which investors shall attain beneficial returns that are actually linked with gold price. This is expected to offer the same returns, as attained from physical gold. It is a fact that a huge number of people require gold and other assets for collateral loans. With the introduction of this scheme, it can be utilized as a form of collateral for loans and they can also be traded on stock market exchange.
What benefits can be attained form Sovereign Gold Bonds:
- The Sovereign Gold Bonds are available in paper and demat form, for a minimum tenure period of 8 years along with an option of leaving the tenor in 5th, 6th and 7th This will also carry the Sovereign guarantee regarding all the capital invested and also the interest rates.
- The Sovereign Gold bonds can be traded in place of early exchanges for the investors who require. Within the Sovereign Gold Bond scheme, the capital gains tax shall be identical with the physical gold loan for any individual investor.
- It has been stated that the department of revenue shall also reconsider the indexation benefit. But to get that benefit, the bond needs to be transferred before maturity and the capital gains tax exemption need to be completed on redemption.
The objective for buying Sovereign Gold Bond
- The primary objectives behind this scheme is the reduction in demands of physical gold and enhance the part of gold imported every year for the purpose of investment. This in turn, will lead to the financial savings through Gold Bonds.
How can you buy the bond?
The Sovereign Gold Bonds are actually issued on the payment of amount that is denominated in grams of gold. The minimum investment limit has been restricted to 2 Grams. And maximum limit has been limited to 500 grams. The investors who are interested to buy the SGB, can fill up the application form available in their nearest centralized banks or post offices. The NSC and NBFC agents are actually authorized for the collection of applications and submit them in banks or PO’s.
The different tranches of SGB
The first tranche of SGB was launched in last year and it had attracted more than 62 thousand individuals. The amount of gold attained was 916Kg which resulted in an investment amount of Rs 246.2 crore. With this subdued response from different individuals, it was essential to bring about some changes within the scheme and make the bond easier for the common people.
In the second tranche, that opened in 2016 January, met with a much bigger success. This time it attracted 3.16 Lakh individuals and the amount of investment collected was Rs 726 crore. A total of 2700 Kg of gold was deposited.
Now, in the present tranche, which is the third one, gold prices are fluctuating. Recently it was recorded as Rs 29,195 for 10 grams. This is the highest known price of gold since May 2014.
Why an individual should opt for SGB instead of physical gold?
There are certain reasons why an individual needs to opt for SGB instead of physical gold. They are:
- Since the investor is actually gaining the present market, he/she can rest assured that the gold quality is completely protected. Thus, during the time of maturity of the bond, the investor shall have the same rate that was at the time of deposition of gold. This makes it a better option that physical gold.
- There are no storage and risk costs. Thus the additional cost burden is completely removed.
- Since the bonds are secured within the books of RBI, there are no chances of any issues related to the quality or quantity of gold that you shall be depositing. You can rest assured that your gold is completely safe.
Challenges that are faced by government at third tranche SGB
There have been intense strikes throughout the jewelers of the country after the budget released by the government. Because it has imposed 1% excise duty on jewelry. But it had to be revised and finally it was confirmed that the jewelers having a turnover of more than 12 crore in a year, shall be liable for the excise duty. Also the high price of gold in the present market can be a matter of concern for those who are opting for SGB.
A tabular overview of different factors of SGB
|SL NO||Factors||Brief Overview|
|1.||The benefits||SGB is available in both paper and demat form for 8 years along with the option of leaving the tenure within 5, 6, 7 years.|
It can be traded as collateral or early exchange for investors and the capital tax gains shall be identical to the gold loan for any investor.
Indexation benefit shall also be considered.
|2.||The reasons to go for it||The quantity of gold shall be protected since investor shall receive present market price during redemption.|
No risk of storage and additional cost.
No possibilities for changing in quality or quantity of gold, since the bonds are secured in RBI books.
|3.||The possible challenges||Strikes and oppressions among jewelers after the budget, due to the implementation of 1% as excise in jewelry business. Because, prior to the budget there were no excise duties on gold and the transactions were completely duty free.|
Also the high price of gold in the present market can raise a trust issue among depositors about getting the amount.
Gold Coin Scheme
The Indian Government has introduced the first Gold coin minted in our country. The coin has the national Emblem on one side and Mahatma Gandhi on its other side. The coins will be made in 5, 10 and 20 grams of Gold and only 15000 5grams coins, 20,000 10 grams coins and 3750 20 grams coins will be issued initially. These coins will be packed in a tamper proof packing and would be available at MMTC outlets, authorised banks and post offices. The purity of these coins will be 24 karat and the fineness will be 999. As a certificate of purity these coins will also have a BIS stamp.