The Government of India (GoI), in consultation with the Reserve Bank of India (RBI), has decided to issue sovereign gold bonds (SGBs) in six tranches, from April 2020 to September 2020, under the SGB Scheme 2020-21.

The first SGB series will open for subscription from April 20 to April 24; followed by second series (May 11-15), third series (June 8-12), fourth series (July 6-10); fifth series (August 3-7); and sixth series (August 31-September 4), the central bank said in a statement.

The SGBs, which are issued by the RBI on behalf of GoI, can be subscribed to only by resident individuals, Hindu Undivided Family (HUF), trusts, universities and charitable institutions. The bonds will be denominated in multiples of gram(s) of gold, with a basic unit of 1 gram.

The minimum permissible investment will be 1 gram of gold. The maximum limit of subscription will be 4 kg each for the individual and HUF and 20 kg for trusts and similar entities per fiscal (April-March), notified by the government from time to time.

Bond specifics

As per the RBI statement, the annual ceiling will include bonds subscribed under different tranches during initial issuance by government and those purchased from the secondary market. Further, in case of joint holding, the investment limit of 4 kg will be applied to the first applicant only.

The gold bonds will be issued as Government of India Stock under GS Act, 2006. Investors will be issued a holding certificate for the same. the bonds are eligible for conversion into demat form.

The tenor of the bond will be eight years with exit option after the fifth year to be exercised on the interest payment dates. Investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value, the RBI said.

The 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.

The price of SGB will be fixed in Indian rupee on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Ltd for the last three working days of the week preceding the subscription period. The issue price of the gold bonds will be ₹50 per gram less for those who subscribe online and pay through digital mode.

Jump in subscriptions

According to the Finance Ministry, the SGB Scheme, which was introduced in November 2015, is provided as a substitute for physical gold to investors.

As per ministry data, 33 tranches of SGBs have been issued so far (up to October 2019), aggregating 28,644.07 kg. In fact, in FY2019-20, SGB subscriptions jumped 87 per cent year-on-year to 3,797.45 kg against 2,030.87 kg in FY2018-19

These bonds are sold through scheduled commercial banks (except small finance banks and payment banks), Stock Holding Corporation of India Ltd, designated post offices, and recognised stock exchanges — NSE and BSE.