Sovereign Gold Bond Scheme FY 2020-21 – A complete calendar

The government of India announced the Sovereign Gold Bond Scheme FY 2020-21 calendar details for the current financial year. The Sovereign Gold Bonds will be issued in thirteen tranches from April 2020 to March 2021.

Sovereign Gold Bond Scheme FY 2020-21 – A complete calendar

As I mentioned above, the Sovereign Gold Bond Scheme FY 2020-21 will be issued in thirteen tranches.

The Bonds will be sold through Scheduled Commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

Sovereign Gold Bond Scheme FY 2020-21 Issue Details

Features of Sovereign Gold Bond Scheme FY 2020-21

Before proceeding further, I will try to explain how the Sovereign Gold Bond Scheme FY 2020-21 works in a simple image.

Sovereign Gold Bond Scheme FY 2019-20 – Series V

# Who can invest?

Resident Indian entities including individuals (in his capacity as such individual, or on behalf of a minor child, or jointly with any other individual.), HUFs, Trusts, Universities, and Charitable Institutions can invest in such bonds.

Hence, NRIs are not allowed to participate in the Sovereign Gold Bond Scheme FY 2020-21

# 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.

RBI/depository shall inform the investor of the date of maturity of the Bond one month before its maturity.

# Minimum and Maximum investment

You have to purchase a minimum of 1 gram of gold. The maximum amount subscribed by an entity will not be more than 4 kgs per person per fiscal year (April-March) for individuals and HUF and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).

In the case of joint holding, the investment limit of 4 kgs will be applied to the first applicant only. The annual ceiling will include bonds subscribed under different tranches during initial issuance by the Government and those purchased from the secondary market.

The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions.

#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 Bonds shall be fixed in Indian Rupees fixed on the basis of a simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period. The issue price of the Gold Bonds will be Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

# Payment Option

Payment shall be accepted in Indian Rupees through cash up to a maximum of Rs.20,000/- or Demand Drafts or Cheque or Electronic banking. Where payment is made through cheque or demand draft, the same shall be drawn in favor of receiving an office.

# 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 the Demat form.

# Where to buy Sovereign Gold Bond Scheme FY 2020-21

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

The Bonds will be sold through Scheduled Commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

# Loan against Bonds

The Bonds may be used as collateral for loans. The Loan to Value ratio will be as applicable to ordinary gold loan mandated by the RBI from time to time. The lien on the Bonds shall be marked in the depository by the authorized banks. The loan against SGBs would be subject to the decision of the lending bank/institution, and cannot be inferred as a matter of right by the SGB holder.

# 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 the previous week’s (Monday-Friday) simple average of the closing price of gold of 999 purity published by IBJA.

# Nomination

You can nominate or change the nominee at any point of time by using Form D and Form E.  An individual Non – resident Indian may get the security transferred in his name on account of his being a nominee of a deceased investor provided that:

  1. the Non-Resident investor shall need to hold the security till early redemption or till maturity; and
  2. the interest and maturity proceeds of the investment shall not be repatriable.

Transferability

The Bonds shall be transferable by the execution of an Instrument of transfer as in Form ‘F’, in accordance with the provisions of the Government Securities Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part 6, Section 4 of the Gazette of India dated December 1, 2007.

How to redeem the Sovereign Gold Bond Scheme FY 2020-21?

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 the 8th year-The investor will be informed one month before maturity regarding the ensuing maturity of the bond. On the completion of the 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.

Taxation of Sovereign Gold Bond Scheme FY 2020-21

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

1) Interest Income-The 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 2018-19 – Series 6 and selling it in stock exchange after a year or so. In such a situation, any profit or loss from such a 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.

There is no concept of TDS. Hence, it is the responsibility of investors to pay the tax as per the rules mentioned above.

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 Scheme FY 2020-21 – Should you invest?

Advantages of Sovereign Gold Bond Scheme FY 2020-21

# 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 the 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 safekeeping, no fund charges (like ETF or Gold Funds) and the Demat account is not mandatory.

# In this Sovereign Gold Bond Issue FY 2020-21, 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 Scheme FY 2020-21

# 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 volatility like the 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.

REMEMBER, GOLD IS AN ASSET CLASS WHICH MAY GIVE YOU RETURNS OF DEBT PRODUCT BUT VOLATILITY LIKE EQUITY MARKET-Hence, do you need this asset as an investment in your portfolio?

Conclusion:-During current financial situation, many are looking at Gold as safe heaven. For them Sovereign Gold Bond Schemes may be a boon. However, as I pointed above, Gold is also volatile in nature. Hence, considering all the pros and cons, take your concious decision. I personally stay away from Gold as an investment.

10 Comments

  1. Dear Sir,

    You say if god is required for future use, this is not right instrument. I understand we can invest in MF withdraw but the risk is bigger compared to gold bonds. End of the day if the rates go up or down we can still redeem at end of 8yrs go to the gold shop & purchase similar amount in grams of gold. But MF fir example there is no guarantee that it will grow. I invested in FT India prima fund. Returns for part 3 years is not more than 2%. I am not sure how it will be in 5 years from now. At the most if i make 10% overall I mean 1lakh invested is 110000/- The 10% is earned in 4year period as we have 2.5% interest paid. In 8years, Gold bond pays 20% interest. I mean 1lakh is X grams of gold & we can be sure that we can redeem for equal grams of gold if price rises or falls. There is no assurance from MF in this case. Please let me know if am missing something.

    Reply
    • Dear Vinay,
      There is a huge strong belief that Gold will always go UP. But the reality is that Gold is also volatile in nature like the equity market. I am saying this after going by the 95 years of historical returns.

      Reply
      • In this case, how should people invest in gold for physical use required in future without volatility. If physical gold is purchased then there is the hassle of storage, no interest on the gold. If you can give additional information it may be helpful for people on standby.

        Reply
        • Dear Vinay,
          When I say physical gold, it is for their usage as ornaments but not as an investment asset. There is a huge difference when you buy gold or real estate for your own usage than for investment purposes. You can’t combine both the purposes.

          Reply
  2. What is the tax rate if I purchased SGB through secondary market and hold it till maturity. I couldn’t find any information regarding it.

    Reply
    • Dear Abhijith,
      Refer the post properly. I have already explained it in detail.

      Reply
  3. Thanks for the detailed explanation.

    I note that SGB issued previously is available for purchase via Demat at much cheaper rate at Rs 500 (cheaper) or more per gram. Would it be better to buy it that route? Any difference between buying that vs the new issue? Will I get interest of 2.5% for that purchase too?

    Reply
    • Dear Laxman,
      No difference except the maturity date. If it is available at cheaper, then you can.

      Reply
  4. I have invested in SGB can I convert into my Dmat account if yes then how?

    Reply
    • Dear Mangesh,
      Yes, better to hold in demat account format. Approach any broker of your choice and open demat account.

      Reply

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