Sovereign Gold Bond Issue FY 2017-18 Series II

Recently RBI notified the issuance of Sovereign Gold Bond Issue FY 2017-18 Series II. Bonds will be open for subscription from July 10, 2017 to July 14, 2017. The Bonds will be issued on July 28, 2017. Let us see the eligibility, features and who can invest.

This is the second tranche of the Financial Year 2017 – 2018. This Gold Bonds scheme was launched in November 2015. The government launched this scheme to reduce the demand for physical gold. Indians buy around 300 tons of gold every year. This is to be imported from outside countries. Let us see the silent features of this scheme.

Features of Sovereign Gold Bond Issue FY 2017-18 Series II

Before proceeding further, I will try to explain how the Sovereign Gold Bond Issue FY 2017-18 works in a simple image.

Sovereign Gold Bond Issue FY 2017-18

# Dates to subscribe

Sovereign Gold Bond Issue FY 2017-18 Series II. Bonds will be open for subscription from July 10, 2017 to July 14, 2017. However, the Bonds will be issued on July 28, 2017.

# Who can invest?

Resident Indian entities including individuals, HUFs, Trusts, Universities and Charitable Institutions can invest in such bonds.

Hence, NRIs are not allowed to participate in Sovereign Gold Bond Issue FY 2017-18 Series II

# Tenure of the Bond

The tenor of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.

Hence, after the 5 years onward you can redeem it on 6th, 7th or at maturity of 8th year. Before that you can’t redeem.

# Minimum and Maximum investment

You have to purchase minimum 1 gram of gold. 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.

In the case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

#Interest Rate

You will receive a fixed interest rate of 2.50% per annum payable semi-annually on the nominal value. Such interest rate is on the value of money you invested initially but not on the bond value as on date of interest payout.

Interest will be credited directly to your account which you shared while investing.

# Issue Price

The nominal value of the bond based on the simple average closing price (published by the India Bullion and Jewellers Association Ltd (IBJA)) for gold of 999 purity of the week preceding the subscription period, i.e.July 03-07, 2017 works out to Rs.2,830 per gram. The government of India, in consultation with the Reserve Bank of India, has decided to offer a discount of Rs.50 per gram on the nominal value of the Sovereign Gold Bond. Hence, the issue price of Sovereign Gold Bond Issue FY 2017-18 Series II has been fixed at Rs.2780 per gram of gold.

# Payment Option

Payment for the Bonds will be through cash payment (up to a maximum of Rs.20,000) or demand draft or cheque or electronic banking.

# Issuance Form

The Gold bonds will be issued as Government of India Stock under GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into Demat form.

# Where to buy Sovereign Gold Bond Issue FY 2017-18 Series II

Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated Post Offices (as may be notified) and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.

# Collateral

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.

# Liquidity of the Bond

As I pointed above, after 5th year onwards you can redeem the bond on 6th or 7th year. However, the bond is available to sell in the secondary market (stock exchange) on a date as notified by the RBI.

Hence, you have two options. Either you can redeem it at 6th or 7th year or sell it secondary market after the notification of RBI.

Do remember that the redemption price will be in Indian Rupees based on previous week’s (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.

How to redeem Sovereign Gold Bond Issue FY 2017-18 Series II?

As I explained above, you have an option to redeem only on 6th, 7th and 8th year (automatic and end of bond tenure). Hence, there are two methods one can redeem Sovereign Gold Bonds. Explaining both as below.

# At the maturity of 8th year-The investor will be informed one month before maturity regarding the ensuing maturity of the bond.On the completion of 8th year, both interest and redemption proceeds will be credited to the bank account provided by the customer at the time of buying the bond.

In case there are changes in any details, such as, account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.

# Redemption before maturity-If you planned to redeem before maturity i.e 8th year, then you can exercise this option on 6th or 7th year.

You have to approach the concerned bank/SHCIL offices/Post Office/agent 30 days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.

Sovereign Gold Bond Issue FY 2017-18 Series II Taxation

There are three aspects of taxation. Let us see one by one.

1) Interest Income-The semi-annual interest income will be taxable income for you. Hence, For someone in the 10%, 20%, or 30% tax bracket, the post-tax return comes to 2.25%, 2% and 1.75% respectively. This income you have to show under the head of “Income from Other Sources” and have to pay the tax accordingly (exactly like your Bank FDs).

2) Redemption of Bond-As I said above, after the 5th year onward you are eligible to redeem it on 6th,7th and 8th year (last year). Let us assume at the time of investment, the bond price is Rs.2,500 and at the time of redemption, the bond price is Rs.3,000. Then you will end up with a profit of Rs.500. Such capital gain arising due to redemption by an individual is exempted from tax.

3) Selling in the secondary market of Stock Exchange-There is one more taxation which may arise. Let us assume you buy today the Sovereign Gold Bond Issue FY 2017-18 Series II and selling it in stock exchange after a year or so. In such a situation, any profit or loss from such transaction will be considered as capital gain.

Hence, if these bonds are sold in the secondary market before maturity, then there are two possibilities.

# Before 3 years-If you sell the bonds within three years and if there is any capital gain, such capital gain will be taxed as per your tax slab.

# After 3 years-If you sell the bonds after 3 years but before maturity, then such capital gain will be taxed at 20% with indexation.

Whom to approach for service related issues?

The issuing banks/SHCIL offices/Post Offices/agents through which these securities have been purchased will provide other customer services such as change of address, early redemption, nomination, grievance redressal, transfer applications etc.

Along with this, a dedicated e-mail has been created by the Reserve Bank of India to receive queries from members of public on Sovereign Gold Bonds. Investors can mail their queries to this email id. Below is the e-mail id

RBI Email Id in case of Sovereign Gold Bonds-[email protected]

Sovereign Gold Bond Issue FY 2017-18-Should you invest?

Advantages of Sovereign Gold Bond Issue FY 2017-18 Series II

# After the GST entry, this Sovereign Gold Bond may be advantageous over physical Gold coins or bars. This product will not come under GST taxation. However, in case of Gold coins and bars, earlier the VAT was at 1% to 1.2%, which is now raised to 3%.

# If your main purpose is to invest in gold, then apart from physical form, investing in ETF or in Gold Funds, this seems to be a better option. Because you no need to worry about physical safe keeping, no fund charges (like ETF or Gold Funds) and Demat account is not mandatory.

# In this Sovereign Gold Bond Issue FY 2017-18, the additional benefit apart from the typical physical or paper gold investment is that the annual interest payment on the money you invested.

Hence, there are two types of income possibilities. One is interest income from the investment and second is price appreciation (if we are positive on gold). Hence, along with price appreciation, you will receive interest income also.

But do remember that such interest income is taxable. Also, to avoid tax, you have to redeem it only on 6th, 7th or 8th year. If you sell in the secondary market, then such gain or loss will be taxed as per capital tax gain rules.

# There is no TDS from the gain. Hence, you no need to worry about TDS part like Bank FDs.

# A sovereign guarantee of the Government of India will feel you SAFE.

Disadvantages of Sovereign Gold Bond Issue FY 2017-18 Series II

# If you are planning to invest for your physical usage after 8 years, then simply stay away from this. Because Gold is an asset, which gives you a volatility like stock market but the returns of your debt products like Bank FDs or PPF.

# The key point to understand is also that the interest income of 2.5% is on the initial bond purchase amount but not the yearly bond value. Hence, let us say you invested Rs.2,500, then they pay interest of 2.5% on Rs.2,500 only even though the price of gold moved up and the value of such investment is Rs.3,000.

# Liquidity is the biggest concern. Your money will be locked for 5 years. Also, redemption is available only once a year after 5th year.

In case you want to liquidate in a secondary market, then it is hard to find the right price and capital gain tax may ruin your investment.

# Sovereign guarantee of the Government of India may feel you secure. But the redemption amount is purely based on the price movement of the gold. Hence, if there is a fall in gold price, then you will get that discounted price only. The only guarantee here is 2.5% return on your invested amount and NO DEFAULT RISK.

34 Comments

  1. Sir, I have purchase Swarn Gold Bond during July 2017, through my SBI Bank, but demat account not opened. Will my interest amount deposited in my bank saving account ? Secondly What is procedure to see my status of Bond online?

    Reply
    • Dear Sunil,
      Interest will be credited to your bank account directly. Whether the bonds issued? If no, then approach through whom you submitted the application. Otherwise, you will get the bond certificate from the issuer.

      Reply
  2. dear sir i have purchased sgbmay25 on 10may18 through secondry market,thinking that interest 2.5% will come to my ac .the interest credit date was 12may18,but bonds demated on my ac on 14may18.how rbi comes to know about the holding of bonds,as the same might have been removed from seller ac on 10may.is it calculated on prior date and interest might have been credited to previous owner.i have written to rbi but they are not responding.can you please guide
    warm regards

    Reply
    • Dear Yashpal,
      RBI manages the ledger and based on holding ownership they pay to the existing owner.

      Reply
  3. Thanks for sharing very useful information!!

    I found your blog interesting!

    Reply
  4. I applied for the july series 2 sovereign gold Bond I received the certificate via mail but I have till date not received the same in my demat account. Any clarity on date of demat credit would help.

    Reply
  5. On which date i will received the same in my demat account?

    Reply
    • Apurva-If you provided demat details, then once the issue closes and allotment start, then you will receive it. Check your DP Holding status or ask your broker for the same.

      Reply
      • But on which date Sir G?

        Reply
  6. Sir i brought 50 bond in
    July 2017 how i will receive the bond
    In mail
    Or at the post office from which is have applied from

    Reply
    • Nitin-You will receive the Sovereign Gold Bond either in demat format (if you provided the same) else the physical certificate will be sent to your address. If not received, then check with the institute through which you applied.

      Reply
  7. Hello
    My question is, if I buy a bond of previous series from secondary market then :

    1. Will I get the interest of 2.5% ?
    2. If I get the interest will the interest be on the strike price when the original bond was issued or will the the interest be on the price on which i bought the bond from the secondary market?

    Reply
    • Kunal-1) You will not get the interest rate of 2.5% but the earlier series coupon rate. That you have to check with a feature of that particular series interest rate.
      2) It will be on the face value but not on the price at which you will buy TODAY.

      Reply
      • Thanks for swift and precise reply.
        One last question, if I buy and trade these bonds on secondary market in the demat form, do I have to pay brokerage on delivery basis in buying as well as selling these bonds?
        Means do these sovereign gold bond behave as buying and selling equity through the demat?

        Reply
        • Kunal-Charges will be there. Check with your broker for the same.

          Reply
      • Hi,

        How the interest will be credited to my bank account? Will it send to my default bank account linked to my Demat account(i dont know if there is such linking also) .
        What if i have multiple bank accounts linked to my trading account?

        Reply
          • When buying from secondary market, we dont provide bank details right? Is it not just like buying a stock or etf?

            Reply
            • Vamsi-Sorry, I thought you purchased directly while in offer. Yes, in that case, your demat account details are considered for crediting the interest.

              Reply
  8. Last year I bought the soverign gold bond at the rate of aroun 3000 rupees and now its available in secondary market (NSE or BSE) at around 2750.

    If i want i can buy that to average my purchase cost. why should I pay more at 2780 and buy this new series

    can you explain what is the advantage of buying at 2780 or at less price from secondary market pervious series.

    Reply
    • Madhavan-If the current issue price is higher than the secondary market price, and there are sellers available, then there is no harm in buying from the secondary market. You can go ahead.

      Reply
      • Thanks.
        Yes its available even for 2720.
        That means both bonds are one and the same except the maturity date may differ and interest on base bond amount will slighlty differ

        Other than that the maturity value is same as its market price of prevailing gold rate.

        Is there any tax or capital gain associated with that if the secondary market bought bonds are kept till its 5 years majority.

        In case bonds bought in secondary market say in 2020 and if it has maturity in 2021 than also there will not be any capital gains. Right?

        Reply
        • Madhavan-If it is available at a cheaper price, then better to buy it. Once you hold the bond, then the rules are same like buying new bonds from an issuer. You no need to pay tax while buying from the secondary market.

          Reply
  9. Sir, All the gold ETFs are around 2600 for 1 unit = 1 gm [Gold bees 1 unit=1gm, QGF 1 unit = 0.5gm, Kotak 1 unit=0.1gm) and this gold bond is 2780. Why the difference?

    Reply
    • Vivek-They already explained the bringing in the price for such offer. Arriving at the price for Gold ETF is different than the arriving at the price of these bonds. I already explained

      Reply
  10. I wnated to buy Gold for long term i.e. 15-20 years. The advantage of gold bonds over ETF is 2.5% interest + 1% expense = 3.5%. The advantage of ETF over these bonds is I can time when to sell. Gold will give returns only during bad times, so without the control over when to sell, it’s shooting in the dark and settle with 3-5% average case return. What do you suggest between ETF and these bonds for holding gold over 20-30 years?

    Reply
    • Vivek-If your intention is to buy physical gold after 15-20 years, then why invest in GOLD and why not in an asset which generates more return than the gold? From the accumulated corpus you can buy gold after 15-20 years right? Also, may I know where is the proof that “Gold will give returns only during bad times”? I am repeating once again, Gold is an asset which is volatile in nature like stock market but gives you returns of debt products like your PPF or Bank FDs.

      Reply
  11. It appears that secondary market prices for the earlier series of these bonds are less than the curren issue price. Moreover, they are carrying a higher coupon rate of 2.75%. Is it not prudent for us to purchase from secondary market and get triple benefit of lower price, higher coupon rate and shorter lock-in period? Can you please shed some light on whether my line of thinking is right? Also, we buy from Icici direct.com, HdfcSec,com, etc.,., how shall we approach then for redemption during 6th/7th year? I mean, how do we approach in case of online purchases?

    Reply
    • Madhuri-Good point if you are able to find the sellers in a secondary market and the market price of earlier issues is less than the current issue price. HDFC and ICICI are brokers. You have to approach designated banks and NBFCs for buying (Please refer above post). Regarding redeeming before maturity, I updated the post after your doubt. Please have a look of the post once again. I updated and inserted this section.

      Reply
  12. Good article. Can you also throw some light how to redeem in 6th, 7th or 8th year? What is the process for someone who purchased using Demat? Also it is not understood how for someone who intends to use for physical usage after 8 years it is not so good? Isn’t it that we are locking at tiday’s pricess and additionally 2.5% interest is being given? Yes, only downside risk is if the price itself goes down.

    Reply
    • Madhuri-Redemption process on 8th year will be automatic. The investor will be advised one month before maturity regarding the ensuing maturity of the bond.
      On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record. In case there are changes in any details, such as, account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.
      In case of redemption on 6th and 7th year, investors can approach the concerned bank/SHCIL offices/Post Office/agent thirty days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.
      You may be locking gold in today’s price. But do you think the price is LOCKED once for all for rest 8 years? The maturity amount depends on the relevant price on the 8th year but not the year in which you invested.

      Reply
      • Thanks for the prompt response.

        Reply

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