On July 26, 2017, the Union Cabinet chaired by the Prime Minister Narendra Modi gave approval for revision of guidelines of Sovereign Gold Bonds (SGB) Scheme with a view to achieve its intended objectives.
Need for revision of guidelines pertaining to Sovereign Gold Bonds Scheme:
In view of less than expected response of the investors to the scheme, and considering its bearing on Current Account Deficit and consequently on overall macro-economic health of the country, it was felt necessary to make changes in this scheme to make it a success.
- Specific changes have been made in the attributes of the scheme to make it more attractive, and mobilise finances as per the target.
- Flexibility (for amending and adding features to the scheme) has been given to Ministry of Finance to design and introduce variants of SGBs with different interest rates and risk protection / pay-offs that would offer investment alternatives to different category of investors.
Cabinet has approved following changes in Sovereign Gold Bonds Scheme:
The investment limit per fiscal year has been increased to 4 kg for individuals, 4 Kg for Hindu Undivided Family (HUF) and 20 Kg for Trusts and similar entities notified by the Government from time to time.
- The ceiling will be counted on financial year basis and will include the SGBs purchased during the trading in the secondary market.
- The ceiling on investment will not include the holdings as collateral by Banks and Financial institutions.
- SGBs will be available ‘on tap’ (instantly available). Based on the consultation with NSE, BSE, Banks and Department of Post, features of product to emulate ‘On Tap’ sale would be finalised by Ministry of Finance.
- To improve liquidity and tradability of SGBs, appropriate market making initiatives will be devised. Market makers could be commercial banks or any other public sector entity, such as MMTC or any other entity as decided by Government of India.
- The Government may, if so felt necessary, allow higher commission to agents.
About Sovereign Gold Bonds Scheme:
The Sovereign Gold Bonds Scheme was first announced in Union Budget 2015-16. Consequentially, the first tranche was issued in November 2015. The amount so far credited in Government account is Rs. 4,769 crore on account of this scheme. The funds deployed in Gold Bonds can be used for developmental projects in the country.
Benefits of Sovereign Gold Bonds:
So far, in every tranche the issue price was set at a discount of Rs. 50/gm of nominal value of gold, which itself is a benefit for individual buyers.
- The investors get stipulated interest on the bonds and can also get the benefit if the price of gold appreciates in future.
- These bonds are highly liquid, just as physical gold. These bonds can even be placed as collaterals while seeking loan.
- Buying Gold bonds eliminates the need for conducting quality check, which is required while buying physical gold.
- For buyers of physical gold, storage and security issues are always a concern. There are no such concerns for gold bonds as they are issued in paper form and can even be dematerialised.