Sovereign Gold Bond (SGB) Alert: The Reserve Bank of India has announced the pre-mature redemption of sovereign gold bond (SGB) 2019-20 Series IV. This scheme will be allowed to pre-maturely redeem at Rs 8,634 on Monday, a whopping 193% from its actual issue price. The capital gains tax arising on the redemption of this scheme is exempted for an individual.
Sovereign Gold Bond (SGB) 2019-20 Series IV:
The series IV of the SGB 2019-20 scheme was issued at Rs 2,943 per gram on September 17, 2019. Five years later, the scheme is now available for pre-mature redemption and has an eight-year tenure.
On March 13, RBI said, that for SGB 2019-20 Series IV - Issue date September 17, 2019, premature redemption of Gold Bond may be permitted after the fifth year from the date of issue of such Gold Bond on the date on which interest is payable.
Accordingly, the due date of premature redemption for this scheme is set on March 17, 2025.
Further, RBI stated that the redemption price of SGB shall be based on the simple average of the closing gold price of 999 purity for the previous three business days from the date of redemption, as published by the India Bullion and Jewellers Association Ltd (IBJA).
Accordingly, the redemption price for premature redemption due on March 17, 2025, shall be Rs 8,634/- per unit of SGB based on the simple average of closing gold price for the three business days i.e., March 11, March 12, and March 13, 2025, RBI added.
From the issue price to RBI's pre-mature redemption price, there is a 193.03% jump in the scheme. Apart from this, there is a 2.50% interest rate per annum that is available under the scheme, which will be repayable on the expiration of eight years from the date of the issue of the Bonds.
SGB 2019-20 Series IV Interest Rate:
For the 8-year tenure, investors would get a whopping fixed 20% interest gains on this scheme.
As per the norms of the scheme, RBI said, the interest on the Gold Bonds shall commence from the date of issue and shall be paid at a fixed rate of 2.50 per cent per annum on the nominal value of the bond. The interest shall be payable in half-yearly rests and the last interest shall be payable along with the principal on maturity.
SGB 2019-20 Series IV Redemption:
The gold bonds shall be repayable on the expiration of eight years from the date of the issue of the Bonds.
However, in case of premature redemption of Gold Bond, such repayments will be made on the next interest payment date, as per the terms and conditions.
On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on a simple average of the closing price of gold of 999 purity of previous 3 working days, published by the India Bullion and Jewelers Association Limited. The RBI I depository shall inform the investor one month in advance, about the date of maturity of the Bond.
SGB 2019-20 Series IV Tax Rates:
For SGB 2019-20 Series IV, RBI stated that The interest on the Gold Bond shall be taxable as per the provisions of the Income Tax Act,1961 (43 of 1961). The capital gains tax arising on redemption of these bonds to an individual is exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.
Other key highlights:
SGB 2019-20 Series IV offers loans against gold. The gold bonds under the scheme can be used as collateral security for availing any loan. Such loans could be granted by marking a lien on SGB appropriately. The Loan Value ratio as applicable to any ordinary gold loan mandated by the Reserve Bank of India shall also apply to the Bonds issued under this Scheme.
What Are Sovereign Gold Bonds?
SGBs are issued by RBI as government securities denominated in grams of gold, a substitute to physical gold offering a fixed rate of return which reduces the market risks for a guaranteed period. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
As per RBI's FAQs, there may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.
Sovereign Gold Bonds Eligibility:
Persons resident in India as defined under the Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
Sovereign Gold Bonds Vs Physical Gold:
RBI's FAQs explain that the quantity of gold for which the investor pays is protected since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form.
Also, the risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or demat form eliminating the risk of loss of scrip etc.
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