What is Sovereign Gold Bond (SGB) Scheme?

About Sovereign Gold Bond (SGB) Scheme

• SGBs are government securities denominated in grams of gold.
• The SGB Scheme was first launched by the Government of India (GOI) on October 30, 2015. 
• They are substitutes for holding physical gold. Investors have to pay the issue price, and the bonds will be redeemed upon maturity.
• The bond is issued by Reserve Bank on behalf of the GOI.
• Who is eligible to invest in the SGBs? The bonds will be restricted for sale to resident Indian entities, including individuals (in their capacity as individuals, or on behalf of minor child, or jointly with any other individual), Hindu Undivided Family (HUF), Trusts, Universities and Charitable Institutions.
• What are the minimum and maximum limits for investment?
  • The bonds are issued in denominations of one gram of gold and in multiples thereof.
  • The minimum investment in the bond shall be one gram, with a maximum subscription limit of 4 kg for individuals, 4 kg for HUFs, and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year.
  • In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.
• Tenor: The tenor of the bond will be for a period of 8 years, with an exit option in the 5th, 6th, and 7th years, to be exercised on the interest payment dates.
• Who are the authorized agencies selling the SGBs? Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and the authorised stock exchanges either directly or through their agents.
• Other Features:
  • 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.
  • Investors are assured of the market value of gold at the time of maturity and periodical interest.
  • These securities are eligible to be used as collateral for loans from banks, financial Institutions, and Non-Banking Financial Companies (NBFCs).
  • Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
  • The bonds can also be sold and transferred as per the provisions of Government Securities Act, 2006.
  • Interest on the bonds will be taxable as per the provisions of the Income-tax Act, 1961.
  • The capital gains tax arising on the redemption of SGB to an individual has been exempted. 

Q1) What is a Non-Banking Financial Company (NBFC)?

An NBFC is a company registered under the Companies Act 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature. They offer various banking services but do not have a banking license. They provide banking services like loans, credit facilities, TFCs, retirement planning, investing and stocking in the money market. Generally, these institutions are not allowed to take traditional demand deposits—readily available funds, such as those in checking or savings accounts—from the public. NBFCs are regulated by the Reserve Bank of India (RBI).

Source: Sovereign Gold Bond price fixed at Rs 6,263/gm; issues opens Monday