The Indian government will be introducing the sovereign gold bonds; it will carry an annual interest rate of 2.75% payable semi-annually and will remain open from the period November 5-20. The bonds, to be issued on November 26 will be sold through banks and designated Indian post offices.
It is aimed at channelizing approximately 20 thousand metric tons of gold lying inactive with the people and the religious institutions in the country. The scheme will also help in reducing the demand for physical gold by shifting a part of the estimated 300 tons of physical bars and coins purchased annually for the investment into gold bonds. Earlier in the Union Budget 2015-16, the Indian Finance Minister Arun Jaitley had announced about developing the sovereign gold bonds as an alternative to purchasing the yellow metal.
The bonds will be eligible for statutory liquidity ratio and can be used as collateral for loans. The interest on gold bonds will be taxable as per the Indian Income Tax Act. The actual amount of issuance will be determined by the India’s Reserve Bank (RBI), in consultation with the finance ministry and any related risk associated with the gold price fluctuations will be borne by the Gold Reserve Fund (GRF) that is being created.
“The borrowing through issuance of the bond will form part of market borrowing programme of the government…Price of bond will be fixed in Indian rupees on the basis of the previous week’s (Monday–Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd.” the finance ministry said in an official statement.