Sovereign Gold Bond Issue 2018-19 Series-II – Who can invest?

Sovereign Gold Bond Issue FY2019 Series-II – Who can invesSovereign Gold Bond Issue 2018-2019 Series-II Review


RBI in consultation with Govt. of India has announced that Sovereign Gold Bond Issue FY2019 Series-II would open on 15th October, 2018. They have also announced that such bonds would be issued now every month from October to Feb-2019. Sovereign Gold Bond Issue Price is based on the average price of last week defined by Bullion Association of India and Govt of India offers Rs 50 per gram as discount on this. What are the features of Gold Bond Scheme October 2018 Series-II? How to apply for these bonds? Should you invest in Sovereign Gold Bond Issue FY2019 Series-II? In this article, I would provide complete review of this.

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What is Sovereign Gold Bond Issue in India?


Indians have been buying gold on all auspicious occasions, even though there is no requirement of gold or even if the requirement of gold is there in the future considering the price increase in the future. In view of that, Govt of India has issued Sovereign Gold Bond Issue where one can invest in gold in grams, get interest every 6 months and also get the equivalent amount of gold on maturity. This is as good as investing in physical gold, but getting interest every 6 months in additional.

Features of Sovereign Gold Bond Issue FY2019 Series-II


This Sovereign Gold Scheme of Series-I would open for subscription on 15th October, 2018.

The gold bond scheme would close for subscription on 19th October, 2018.

Resident Indians are eligible to apply for this Sovereign Gold-Bond-Scheme.

These are issued by the Government; hence these are safe investment options.

These gold bonds would be issued on 23rd October, 2018 after subscription is closed. It would be issued in physical form or demat form.

These bonds would carry 2.5% interest rate per annum, which is payable every half year.

Sovereign Gold Bond Price would be decided based on the price of the gold pertaining to previous Friday’s rate of 999 purity gold price published by Indian Bullion and Jewellers Association Ltd. They would offer Rs 50 per gram discount. Gold bond price of Series II would be fixed 3 days before the opening of the subscription.

Tenure of the sovereign gold-bond scheme is 8 years. One can exit from these bonds after 5 years from the date of subscription either after completion of 5 years, 6 years of 7 years.

The Sovereign Gold Bond Issue is issued in denominations of 1 gram of gold and in multiples of 1 gram. One can buy a maximum quantity of 4 KGs in a financial year i.e. April to March period.

You can get a loan against the bonds from banks.

What is the schedule of Sovereign Gold Bonds Issue from Oct-18 to Feb-2019?


Below is the monthly schedule on which these bonds would be open for subscription.

1) FY2019 – Series-II – 15th to 19th October, 2018

2) FY2019 – Series-III – 5th to 9th November, 2018

3) FY2019 – Series-IV – 24th to 28th December, 2018

4) FY2019 – Series-V – 14th to 18th January, 2019

5) FY2019 – Series-VI – 4th to 8th February, 2019.

However, in this article, I would cover only current Series II issue. 

Can we withdraw Sovereign Gold-Bonds before the maturity period?


These gold bonds have a lock in period of 8 years. However, one can do premature withdrawal after completion of 5 years, 6 years or 7 years and during interest date periods. If your interest date is 23rd April (6 months from 23rd October date), you can withdraw after 5 years and on 23rd April or 23rd October.

What about the tax treatment of Sovereign Bond Scheme October 2018 Series-II?


There are 3 ways where there are tax implications.

1) While you would get 2.5% interest per annum on these bonds, this is not tax free. You need to club this interest with your income every year and pay income tax on that based on income tax slab.

2) These are exempted from capital gain arising from selling these bonds. Means, whatever returns you would get at the time of redemption (apart from interest) is tax free.

3) Long term capital would be computed for transfer of these bonds to any other person based on indexation benefits. Means, if it is gifted/transferred, the person getting it need to pay capital gains tax.

Are these Gold Bonds are traded on stock exchanges?


These are tradable on NSE and BSE.  Bond prices would depend on a few parameters like current gold rates, Interest accrued till date on such bonds etc. 

What is the maturity amount of these gold bonds of 2018-2019?


Since you are buying in grams, on maturity, based on gold rate, equivalent amount would be paid to you. E.g. you would have bought 50 Grams of gold. The average prices of gold on maturity (during the previous week of maturity date) assume is Rs 5,000 per gram, you would get Rs 2.5 Lakhs.

How to apply for Sovereign Gold Bond Issue FY2019 Series-II?


You can buy sovereign gold bonds online with any of the banks. Sovereign Gold Bonds are offered by major banks like SBI, ICICI Bank, HDFC etc., Apart from banks, specific Post Offices and Stock Holding Corporation of India are authorized to accept applications under Sovereign Gold scheme. Now you can buy them even on BSE/NSE directly. Know-your-customer (KYC) norms will be the same as that for the purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.

Who is eligible to invest in Sovereign Gold Scheme of Series-II of 2018-2019?


The following are eligible to invest in Sovereign Gold Scheme of 2018-2019.

1) Resident Indians

2) Corporates / Companies registered in India

3) HUFs / Partnership Firms

Non Resident Indians (NRIs) are not eligible to apply.

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Who can invest in Sovereign Gold Bond Issue FY2019 Series-II?


You need to question yourself for a few things, if you are planning to invest in such bonds.

1) What is the purpose of investing in such gold? If you are looking for future appreciation and for long term investment purpose, then you may rethink about your decision. Gold investment appreciation has not given even bank FD rates in the last couple of years. Better to go for some of the top performing mutual fund schemes which can give you 12% to 15% annualized returns.

2) If you are investing in gold bond scheme for short term gains, you may rethink as gold have been hovering at the same rate for the past few years except during festival seasons. Better to invest in short term stocks or short term debt funds which can give better returns.

3) If you are planning to accumulate for future consumption like for ornaments to your spouse or accumulating to give gift on marriage of your daughter, yes, indeed it’s one of the best investment options. No one can predict the gold rates. Hence, investing small amounts in such schemes can help you to accumulate gold grams over a period of time. E.g. you want to accumulate 200 grams gold for your daughter’s marriage in next 10 years, you can invest 20 grams gold in this scheme every year. By the end of 10 years, no matter what the gold price is, you are able to accumulate 100 grams.

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Suresh

Sovereign Gold Bond Issue FY2019 Series-II

5 comments

  • Nirmal

    Hi Suresh,

    If I buy gold bonds through my online banking, can I sell these bonds after a certain period on BSE/NSE platform or I need to buy in my demat directly to keep it liquid.

    thanks
    Nirmal

  • sheetal

    Hi Prashanth,

    Last year, I have opted for this scheme and purchased some gold (via zerodha) and they proivided me NSC ceritificate. Basically, this certificate contains number of grams, which i purchased along with invested amount, also it contains intformation of 2.5%, which will be calculated half yearly.

    Regards,
    Sheetal

  • Mayank Bansal

    Can you provide an analysis of currently trading series on the exchanges in terms of yields/prices and see if they are cheaper than the current issue? Since exchange listed prices are market driven they may not always represent fair value leading to arbitrage opportunities which we may deploy assuming sufficient liquidity. Thanks

  • Prashanth

    Hi Suresh ji,

    Thanks for the information.
    Right from the introduction of these gold bonds, I have been investing through banks with whatever amount I could. I want to know if there is any way I can find out how much I have invested or how many grams I have purchased so far in total?

    Thanks,
    Prashanth

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