Gold Bond and Gold Deposit Scheme 2015

Recently Govt. of India has announced the three gold schemes; two for consumers and one for manufacturers i.e  Jewellers. We will discuss here the features of the first two.

Sovereign Gold Bond Scheme (SGBs)

It is a government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India. The bonds are held in the books of the RBI  or in demat form eliminating risk of loss of scrip. The application form will be provided by the issuing banks/designated Post Offices. It can also be downloaded from the RBI’s website. Banks may also provide online application facility.

Process

KYC will be completed by the issuing banks/Post Offices. Any Individual, HUF, Trust and Company can subscribe to these bonds. The maximum holding period is 8 years with lock in period of 5 years. It carries interest rate of  2.75% pa. On maturity one can get the equivalent amount of market price of gold. Loan Facility is available against gold Bonds. One can possess gold on paper and need not  take risks of physical safekeeping. It is opened from 5th November 2015 till 20th November 2015.The issue price is Rs2,684 per 10 gms.(Current market price is below that)The minimum quantity is 2 gms upto maximum 500 gms  per fiscal year and   currently tax is payable  on the interest. But likely to get tax clarity  in the ensuing budget.

  Gold Deposit Scheme (GDS)

Gold Deposit Scheme (GDS) is in the nature of a fixed deposit in gold. This is also called as Gold monetization scheme.One can open an account with a bank and deposit gold in any form; coins, bars or ornaments. You will be provided with a provisional receipt. Bank will then forward that gold to refineries where it will be melted and hallmarked for purity. At this point if the depositor is not happy with the valuation he can take the gold back by paying nominal charges. If valuation is agreed upon, Gold deposit will be issued by a nodal branch. The whole process will take around 90 days. Depositor will be getting interest on his gold deposits between 2.25 to 2.5%. On maturity depositor can either have gold or cash as per his/her preference. The Gold price on the day of maturity will be the basis of repayment.Gold deposits provide Loan Facility and tax  exemption from wealth tax, income tax and capital gain tax.It generates  income besides the benefit of safekeeping vis a vis  physical gold.It has penalty for premature payment before lock in period of 1 year.

Better than Gold  ETF /Gold Fund?

 Gold ETFs/Funds have expenses of management of around 1%  which is charged to the investor and in fact is deducted from the value of the fund. Further Gold ETF /Fund does not provide any return other than the appreciation in the prices of the metal.The gold bonds and Gold deposits  are offering  higher returns.But ETFs /Funds score on liquidity.

 Challenge

Possession of gold is a cultural issue in Indian households and Parting with jewellery  may meet with reluctance from households.But temples having huge amount of gold can prefer to earn interest by opting for Gold deposit scheme.As far Financial Planning principles are concerned; gold as asset class  should have maximum asset allocation of 5 %.

Last modified on Wednesday, 10 February 2016 06:24

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

7 comments

  • lazoi

    posted by lazoi

    Thursday, 13 October 2016 12:32

    Thanks for sharing the above information with us..
    Nicely written, Keep sharing.

    Report
  • lazoi

    posted by lazoi

    Thursday, 13 October 2016 12:31

    Thanks for sharing the above information with us..
    Nicely written, Keep sharing.

    Report
  • sagar

    posted by sagar

    Wednesday, 10 February 2016 11:12

    Concise and a good one.

    Report
  • Anay Mahajan

    posted by Anay Mahajan

    Wednesday, 10 February 2016 11:09

    Nice Article at this current situation of our society!!!

    Report
  • pooja

    posted by pooja

    Wednesday, 10 February 2016 11:08

    new but helpful

    Report
  • Yoga Lewisville

    posted by Yoga Lewisville

    Friday, 29 January 2016 02:37

    Cool topic on this website. My coworker and I were just talking about this. Thank you for sharing

    Report
  • Sujata Aniruddha Sapkal

    posted by Sujata Aniruddha Sapkal

    Saturday, 14 November 2015 05:22

    Nice compilation of information regarding gold related schemes.

    Report

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