Sovereign Gold Bond Scheme 2020-21 Series VII – Who can invest?
Sovereign Gold Bond Scheme 2020-21 Series VII is available for subscription from 12th October 2020 to 16th October 2020 and it will be issued on 20th October 2020. Who can invest in these bonds?
This is the seventh tranche of the Financial Year 2020-21. Refer to the complete issue details for FY 2020-21 at our earliest post “Sovereign Gold Bond Scheme FY 2020-21 – A complete calendar“. This Gold Bonds scheme was launched in November 2015. The government launched this scheme to reduce the demand for physical gold. Indians buy around 300 tons of gold every year. This is to be imported from outside countries. Let us see the silent features of this scheme.
The Bonds shall be issued in the form of Government of India Stock in accordance with section 3 of the Government Securities Act, 2006. The investors will be issued a Holding Certificate (Form C). The Bonds shall be eligible for conversion into de-mat form.
Features of Sovereign Gold Bond Scheme 2020-21 Series VII
Before proceeding further, I will try to explain how the Sovereign Gold Bond Scheme 2020-21 Series VII works in a simple image.
# Dates to subscribe
Sovereign Gold Bond Scheme 2020-21 Series VII will be open for subscription from 12th October 2020 to 16th October 2020. The Bonds will be issued on 20th October 2020.
# Who can invest?
Resident Indian entities including individuals (in his capacity as such individual, or on behalf of a minor child, or jointly with any other individual.), HUFs, Trusts, Universities, and Charitable Institutions can invest in such bonds.
Hence, NRIs are not allowed to participate in the Sovereign Gold Bond Scheme 2020-21 Series VII.
# Tenure of the Bond
The tenor of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.
Hence, after the 5 years onward you can redeem it on 6th, 7th or at maturity of 8th year. Before that, you can’t redeem.
RBI/depository shall inform the investor of the date of maturity of the Bond one month before its maturity.
# Minimum and Maximum investment
You have to purchase a minimum of 1 gram of gold. The maximum amount subscribed by an entity will not be more than 4 kgs per person per fiscal year (April-March) for individuals and HUF and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).
In the case of joint holding, the investment limit of 4 kgs will be applied to the first applicant only. The annual ceiling will include bonds subscribed under different tranches during initial issuance by the Government and those purchased from the secondary market.
The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions.
# Interest Rate
You will receive a fixed interest rate of 2.50% per annum payable semi-annually on the nominal value. Such interest rate is on the value of money you invested initially but not on the bond value as on date of interest payout.
Interest will be credited directly to your account which you shared while investing.
# Issue Price
The nominal value of the Bonds shall be fixed in Indian Rupees fixed on the basis of a simple average of the closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period. The issue price of the Gold Bonds will be Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. The issue price of Sovereign Gold Bond Scheme 2020-21 Series VII is at Rs.5,051.
# Payment Option
Payment shall be accepted in Indian Rupees through cash up to a maximum of Rs.20,000/- or Demand Drafts or Cheque or Electronic banking. Where payment is made through cheque or demand draft, the same shall be drawn in favor of receiving an office.
# Issuance Form
The Gold bonds will be issued as Government of India Stock under GS Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into Demat form.
# Where to buy Sovereign Gold Bond Scheme 2020-21 Series VII?
Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated Post Offices (as may be notified) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.
# Loan against Bonds
The Bonds may be used as collateral for loans. The Loan to Value ratio will be as applicable to ordinary gold loan mandated by the RBI from time to time. The lien on the Bonds shall be marked in the depository by the authorized banks. The loan against SGBs would be subject to the decision of the lending bank/institution, and cannot be inferred as a matter of right by the SGB holder.
# Liquidity of the Bond
As I pointed above, after 5th year onwards you can redeem the bond on 6th or 7th year. However, the bond is available to sell in the secondary market (stock exchange) on a date as notified by the RBI.
Hence, you have two options. Either you can redeem it at 6th or 7th year or sell it secondary market after the notification of RBI.
Do remember that the redemption price will be in Indian Rupees based on the previous week’s (Monday-Friday) simple average of the closing price of gold of 999 purity published by IBJA.
# Nomination
You can nominate or change the nominee at any point of time by using Form D and Form E. An individual Non – resident Indian may get the security transferred in his name on account of his being a nominee of a deceased investor provided that:
the Non-Resident investor shall need to hold the security till early redemption or till maturity; and
the interest and maturity proceeds of the investment shall not be repatriable.
# Transferability
The Bonds shall be transferable by execution of an Instrument of transfer as in Form ‘F’, in accordance with the provisions of the Government Securities Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part 6, Section 4 of the Gazette of India dated December 1, 2007.
How to redeem Sovereign Gold Bond Scheme 2020-21 Series VII?
As I explained above, you have an option to redeem only on 6th, 7th and 8th year (automatic and end of bond tenure). Hence, there are two methods one can redeem Sovereign Gold Bonds. Explaining both as below.
# At the maturity of the 8th year-The investor will be informed one month before maturity regarding the ensuing maturity of the bond. On the completion of the 8th year, both interest and redemption proceeds will be credited to the bank account provided by the customer at the time of buying the bond.
In case there are changes in any details, such as account number, email ids, then the investor must intimate the bank/SHCIL/PO promptly.
# Redemption before maturity-If you planned to redeem before maturity i.e 8th year, then you can exercise this option on 6th or 7th year.
You have to approach the concerned bank/SHCIL offices/Post Office/agent 30 days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date. The proceeds will be credited to the customer’s bank account provided at the time of applying for the bond.
Sovereign Gold Bond Scheme 2020-21 Series VII Taxation
There are three aspects of taxation. Let us see one by one.
1) Interest Income-The semi-annual interest income will be taxable income for you. Hence, For someone in the 10%, 20%, or 30% tax bracket, the post-tax return comes to 2.25%, 2% and 1.75% respectively. This income you have to show under the head of “Income from Other Sources” and have to pay the tax accordingly (exactly like your Bank FDs).
2) Redemption of Bond-As I said above, after the 5th year onward you are eligible to redeem it on 6th,7th and 8th year (last year). Let us assume at the time of investment, the bond price is Rs.2,500 and at the time of redemption, the bond price is Rs.3,000. Then you will end up with a profit of Rs.500. Such capital gain arising due to redemption by an individual is exempted from tax.
3) Selling in the secondary market of Stock Exchange-There is one more taxation which may arise. Let us assume you buy today the Sovereign Gold Bond Issue FY 2018-19 – Series 6 and selling it in stock exchange after a year or so. In such a situation, any profit or loss from such a transaction will be considered as capital gain.
Hence, if these bonds are sold in the secondary market before maturity, then there are two possibilities.
# Before 3 years-If you sell the bonds within three years and if there is any capital gain, such capital gain will be taxed as per your tax slab.
# After 3 years-If you sell the bonds after 3 years but before maturity, then such capital gain will be taxed at 20% with indexation.
There is no concept of TDS. Hence, it is the responsibility of investors to pay the tax as per the rules mentioned above.
Whom to approach for service related issues?
The issuing banks/SHCIL offices/Post Offices/agents through which these securities have been purchased will provide other customer services such as change of address, early redemption, nomination, grievance redressal, transfer applications etc.
Along with this, a dedicated e-mail has been created by the Reserve Bank of India to receive queries from members of public on Sovereign Gold Bonds. Investors can mail their queries to this email id. Below is the e-mail id
RBI Email Id in case of Sovereign Gold Bonds-sgb@rbi.org.in
Sovereign Gold Bond Scheme 2020-21 Series VII – Who can invest?
Before proceeding further just check it the current market price of past issues.
History of Sovereign Gold bond Schemes Prices
The issue price of Sovereign Gold Bond Scheme 2020-21 Series VII is Rs.5,051. However, if you look at the price of the past issues, they are well within the current issue price. Hence, rather than BLINDLY subscribing to this new issue, it is better you try to buy it from secondary market. However, make sure that you are buying the latest issues which will mature in 2028 (if you are holding for 8 years).
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