India’s relation with gold is deeply historical. After China, India is the next biggest consumer of gold. However, in comparison to the demand of the gold, India produces a bit less. So, the gap is fulfilled via imports that result in a substantial devaluation of Indian rupees, and the foreign exchange reserves being depleted at alarming levels. Gold is considered as a prominent investment option because of its long-established loyalty and also because of the absence of any other convenient mode of investment in the State. Deviation of investment from the physical type of gold to the non-physical structure is the pressing priority, and to accomplish this objective, the Indian government initiated many measures. Sovereign Gold Bonds (SGB’s) was presented as one of the measures.
Sovereign Gold Bonds were launched in 2015 under the Gold Monetization Scheme by the PM Narendra Modi when he was addressing the nation through “Man Ki Baat.” These bonds are government securities that is denominated in multiples of grams of gold with the minimum unit of 1 gram. The bond is issued by Reserve Bank of India in consultation with the government of India. The investors are required to pay the issue price in cash, and the bonds will be redeemed on maturity in cash. It acts as substitutes for holding physical gold. These bonds are preferred over physical gold because the risks and the cost of storage are eliminated. Moreover, the gold bonds are free from issues like making charges and purity in the case of gold in jewelry form. The risk of loss of scrip is also waived as the bonds are held either in Demat form or in the books of the RBI. The tenor of the bond is considered for a period of 8 years with the option of exit in 5th, 6th and 7th year, to be exercised on the interest payment dates. Therefore, the investment in gold may take up many forms like holding the physical form of gold, paper gold, SGB etc., but out of all these investment options, SGB is regarded as more beneficial and convenient as compared to the other investment alternatives.
Every person as a resident of India, as defined under the Foreign Exchange Management Act, 1999 are eligible to invest in sovereign gold bonds. Such eligible investors incorporate individuals, trusts, HUFs, universities, and charitable institutions. An individual investor with an ensuing change in residential status from resident to non-resident may continue to hold the gold bonds till early redemption or maturity. Under the scheme, a joint holding is also allowed with other eligible members. Even a minor can invest in the gold bonds whose application has to be made by his/her guardian on behalf of the minor.
Sovereign gold bond availability is not on-tap basis. Instead, the government intermittently opens the gate for the fresh sale of the bonds to investors. The bonds won’t be accessible all year round. The government will continue to come out with the primary issue of different tranches of the bonds for open purchase. This could basically happen every 2-3 months, and the gate tends to be open for about seven days. “Where investors are hoping to purchase the bonds anytime in between, the only way is to buy earlier issues (at market value) that are listed in the secondary market”.
M. (2019a). Which is the Best Investment Option? sovereign gold bond scheme or gold ETFs. Retrieved from https://www.mymoneysage.in/software/sovereign-gold-bonds [for academic writing not a very credible source]
C. (2020, May 17). Why Investment in sovereign gold bond scheme is better than investment in Physical Gold. Retrieved from https://taxguru.in/finance/investment-sovereign-gold-bond-scheme-better-investment-physical-gold.html
Online, F. E. (2020, April 16). Sovereign Gold Bond: Is it a good investment? Find out. Retrieved from https://www.financialexpress.com/money/sovereign-gold-bond-is-it-a-good-investment-find-out/1930094/
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