Introduction of Sovereign Gold Bonds Scheme

Universal Gold Bond Scheme

Ques: The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, gave its approval for introduction of the Sovereign Gold Bonds Scheme, as announced in-

a. Union Budget 2013-14
b. Union Budget 2014-15
c. Union Budget 2015-16
d. None of the above

Ans: c

Related facts:

  • The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval for introduction of the Sovereign Gold Bonds Scheme, as announced in the Union Budget 2015-16.
  • The scheme will help in reducing the demand for physical gold by shifting a part of the estimated 300 tons of physical bars and coins purchased every year for Investment into gold bonds.
  • Since most of the demand for gold in India is met through imports, this scheme will, ultimately help in maintaining the country’s Current Account Deficit within sustainable limits.
  • The issuance of the Sovereign Gold Bonds will be within the government’s market borrowing program for 2015-16 and onwards.
  • The benefit to the Government is in terms of reduction in the cost of borrowing, which will be transferred to the Gold Reserve Fund.
  • The salient features of the scheme are:-
    Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold.
    ii. Bonds will be issued on behalf of the Government of India by the RBI. Thus, the Bonds will have a sovereign guarantee.
    iii. The issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by Government.
    iv. The bond would be restricted for sale to resident Indian entities.
    v. The Government will issue bonds with a rate of interest to be decided by the Government.
    vi. The bonds will be available both in demat and paper form.
    vii. The bonds will be issued in denominations of 5, 10, 50, 100 grams of gold or other denominations.
    viii. The price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption.
    ix. Banks/NBFCs/Post Offices/ National Saving Certificate (NSC) agents and others, as specified, may collect money / redeem bonds on behalf of the government (for a fee, the amount would be as decided).
    x. The tenor of the bond could be for a minimum of 5 to 7 years, so that it would protect investors from medium term volatility in gold prices.
    xi. Bonds can be used as collateral for loans.
    xii. Bonds to be easily sold and traded on exchanges to allow early exits for investors who may so desire.

xiii. KYC norms will be the same as that for gold.
xiv. Capital gains tax treatment will be the same as for physical gold for an ‘individual’ investor.

Reference:

http://pib.nic.in/newsite/PrintRelease.aspx?relid=126752

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