Sovereign Gold Bond (SGB) Scheme
Sovereign Gold Bond (SGB) Scheme
Sovereign Gold Bonds (SGBs) are a popular investment option in India, especially for those interested in diversifying their portfolio with gold.
Sovereign Gold Bond (SGB) Scheme:
- Introduction:
- Launched by the Government of India in November 2015.
- Aims to provide an alternative to physical gold and reduce the demand for gold imports.
- Issuing Authority:
- Issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- Features:
- Denomination: Bonds are issued in multiples of one gram of gold.
- Tenure: 8 years, with an exit option after the 5th year.
- Interest Rate: 2.5% per annum, payable semi-annually.
- Gold Price Linkage: The value of the bond is linked to the market price of gold.
- Tax Benefits: Interest earned is taxable, but capital gains tax is exempt if held till maturity.
- Eligibility:
- Available to individuals, HUFs, trusts, and similar entities.
- Joint holding is allowed.
- Subscription Process:
- Periodicity: The bonds are offered in tranches throughout the year.
- Application: Investors can apply online or through designated banks, post offices, and financial institutions.
- Pricing: Issued at a price based on the current market price of gold.
- Redemption:
- Redeemable in cash on maturity, based on the value of gold.
- Early redemption is allowed after 5 years.
- Advantages:
- No Storage Issues: Unlike physical gold, SGBs eliminate the need for storage.
- Safety: Issued by the government, thus considered a safe investment.
- Returns: Provides returns in the form of interest plus capital appreciation linked to the gold price.
- Drawbacks:
- Liquidity: While redeemable after 5 years, it might not be as liquid as physical gold.
- Tax Implications: Interest earned is taxable under the Income Tax Act.
- Market Impact:
- Helps in reducing the demand for physical gold and contributes to a reduction in the current account deficit.
- Recent Developments:
- Updates and changes in terms are periodically announced by the RBI and the government.
Questions on Sovereign Gold Bonds (SGBs) along with their answers and explanations:
1. When was the Sovereign Gold Bond (SGB) scheme launched by the Government of India?
a) November 2014
b) November 2015
c) November 2016
d) November 2017
Answer: b) November 2015
Explanation: The Sovereign Gold Bond scheme was launched by the Government of India in November 2015 to provide an alternative to physical gold and reduce the demand for gold imports.
2. What is the interest rate provided on Sovereign Gold Bonds?
a) 2% per annum
b) 2.5% per annum
c) 3% per annum
d) 3.5% per annum
Answer: b) 2.5% per annum
Explanation: Sovereign Gold Bonds offer an interest rate of 2.5% per annum, payable semi-annually. This is in addition to the capital gains derived from the price appreciation of gold.
3. Who is the issuing authority of Sovereign Gold Bonds in India?
a) Ministry of Finance
b) Reserve Bank of India (RBI)
c) Securities and Exchange Board of India (SEBI)
d) Indian Banks’ Association (IBA)
Answer: b) Reserve Bank of India (RBI)
Explanation: Sovereign Gold Bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The RBI manages the issuance and redemption of these bonds.
4. How is the value of Sovereign Gold Bonds determined at the time of redemption?
a) Based on the price of gold on the day of issue
b) Based on the price of gold on the day of redemption
c) Fixed at the time of issue
d) Based on the average price of gold over the tenure
Answer: b) Based on the price of gold on the day of redemption
Explanation: The value of Sovereign Gold Bonds at redemption is linked to the market price of gold on the date of redemption, allowing investors to benefit from the appreciation in gold prices.
5. What are the tax implications for interest earned on Sovereign Gold Bonds?
a) Exempt from tax
b) Taxable as per income tax rules
c) Exempt under capital gains tax09«
d) Taxable under wealth tax
Answer: b) Taxable as per income tax rules
Explanation: The interest earned on Sovereign Gold Bonds is taxable under the Income Tax Act. However, the capital gains tax on the bonds is exempt if they are held until maturity.