This really is paper gold 

#GS3 #Economy 

Sovereign gold bonds are issued by the govt. 

  • Sovereign gold bond is a substitute for holding physical gold.  
  • The bonds are issued by the Reserve Bank of India (RBI) on behalf of the government and is a bond denominated in gold.  
  • The government issues such bonds in tranches at a fixed price that investors can buy through banks, post offices and also in the secondary markets through the stock exchange platform. 
  • These bonds are backed by a sovereign guarantee and can also be held in demat form.  
  • Further, they are priced as per the underlying spot gold prices.  
  • Hence, investors who want to invest in gold can buy the bonds without worrying about safekeeping of physical gold along with locker charges, making charges or purity issues.  
  • Plus, these bonds offer an interest at the rate of 2.5% per annum on the principal investment amount.  
  • While the interest on the bonds are taxable, the capital gains at the time of redemption are exempt from tax.  
  • These bonds can also be used as collateral for availing loans from banks and NBFCs. 
  • SGB has a fixed tenure of eight years, though early redemption is allowed after the fifth year from issuance.  
  • Since the bonds are listed on the exchange, these can be transferred to other investors as well.  
  • The bonds are priced in rupees based on the simple average of closing price of gold of 999 purity. 
  • At the time of redemption, cash equivalent to the number of units multiplied by the then prevailing price would be credited to the bank account of the investor. 
  • The latest tranche, which closed for subscription last week, was priced at ₹4,590 per gram.  
  • Those who apply online were eligible for a discount of ₹50 per gram.  
  • Capital loss is a risk since the bond prices would reflect any change in gold prices.  
  • If gold prices fall, the principal investment would fall proportionately. 
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