Explainer: What is the ‘Sovereign Gold Bonds Scheme’?
Sai Krishna Muthyanolla
January 9, 2020
Gold is an integral part of any
Indian family, for many traditions & occasions. As a substitute to holding
physical gold, the government introduced the ‘Sovereign Gold Bonds Scheme’ in
2015. What is this scheme and how can one subscribe? Here is an explainer.
Gold has a cultural significance inIndia and is an integral part of many traditions & occasions. Apart fromits cultural significance, Gold is also considered as a good investment withmany households inclined to invest their savings in the purchase of gold.
However, the storage of gold inphysical form is a matter of concern due to safety reasons. Depositing gold instorage facilities like Bank lockers does attract some fees. In fact, availabilityof lockers is also an issue.  Furthermore, most of the gold purchased is inthe form of jewellery where full value of gold is realized due to the lossduring the making process.
To take advantage of Indian citizenspropensity to invest in gold and create an alternative saving option, SovereignGold Bonds were introduced.
What is a Sovereign Gold Bond?
In his Budget – 2015-16 speech , the then Finance Minister ArunJaitley, proposed ‘Sovereign Gold Bond’ as an alternative financial asset,which would also act as a substitute for physical gold.
Further to this, Central government issued a notification on 30 October 2015, duly notifying the‘Sovereign Gold Bonds Scheme – 2015’.
A Sovereign Gold Bond (SGB) isissued by Reserve Bank of India on behalf of the government. These are consideredas government securities and are treated as a substitute for holding goldphysically, hence the risks associated with storage are eliminated.
All residents of India (defined under Foreign Exchange Management Act-1999) are eligible to invest in SGB.This includes – individuals, HUFs, trusts, charitable institutions, universitiesetc.
How to buy Sovereign Gold Bonds ?
Sovereign Gold Bonds are offered bythe RBI in tranches during specific window period. The scheme is not acontinuous one and there are specific time periods during which the bonds canbe purchased.  Accordingly, fromtime-time, RBI issues notification announcing the Sovereign Gold BondScheme, with the details of the issue.
Specific dates during which the Tranchesare open for subscription are provided.
The bonds can be subscribed by fillingup of the application form provided by the issuing banks, SHCIL (Stock Holding Corporationof India Limited ) offices, designated post offices, recognised Stock Exchanges i.e.BSE & NSE.  Form A, used for the application purposecan be downloaded from RBI’s website and submitted at one of the specifiedplaces mentioned.  Few banks also providescope for applying online.
An investor can have only oneInvestor ID which is linked to the PAN number. Once the application isreceived, the receiving officer would issue Form B as acknowledgement of the receipt.
Nomination form (Form D) can also be filled for the purposeof payment in case of death of the applicant. The nomination can be cancelledthrough Form E.
Application for subscription doesnot guarantee the issuance of the SGBs. The application is verified and SGBsare allotted. A Holding Certificate i.e. Form -C is issued to the investors. This isissued in the form of Government of India Stock as per Section 3 of Government Securities Act -2006.
These bonds can also be transferredas per the provisions provided under Government Securities Act – 2006 &Government Securities Regulations, 2007. Form F needs to be used for transferringof the bonds.
The last window period forsubscription was during 02 December 2019 – 06 December 2019.
The next issue would be during 13January -17 January 2020, which is the series VIII for 2019-20.  RBI has issued the latest operational guidelines on 30 September 2019.
RBI also has a detailed FAQs section on the Sovereign God Bonds on itswebsite.
Storage feasibility and flexibility are
advantages of SGBs.
Although, SGBs would not substitutethe physical necessity of purchasing or holding gold, they are aimed atmaximising the benefit achieved through investing in gold.  The SGB scheme is formulated to provide greaterbenefit to investors compared to physical gold or Gold ETFs (Exchange TradedFunds).
SGBs, however, also carry few of therisks  associated with physical gold,like drop in the gold rates due to market fluctuations.
2.92 crores units of SGBs issued
since inception
Since the inception ofthe scheme in November 2015, there have been a total of 34 tranches of issuesso far.  A total of over 2.92 crores units have been subscribedand issued so far.
The first tranche i.e.in 2015 had more than 9.13 lakh SGB units purchased at Rs. 2684 per unit.
The highest purchase ofSGBs was in the 6 tranche i.e. Series III of 2016-17, where 35.98lakh units were purchased at Rs. 2,957 per unit.
There has been a steepfall in the number of units bought for Series II of Fiscal 2017-18, with only2.64 lakh units purchased. The price was Rs. 2,956 per unit. The drop in thenumber of SGBs bought continued through the whole of 2017-18 and 2018-19 with coupleof exceptions.
In recent times, seriesIII of 2019-20 i.e. 5-9 August 2019 had the highest numberof SGBs bought with 10.24 lakhs at Rs. 3,499 per unit, with subsequent fall infurther tranches.
Fall in the demand for
SGBs compared to the initial period
Compared to the initialyears between end of 2015 and beginning of 2017, when high number of SGB unitsthat were sold, the previous couple of years has seen a huge fall in thenumbers.
Few industry experts cite the lack lustremovement in the gold prices to be one of the major reasons for the fall indemand. The data provided by RBI, does indicatealmost stagnant gold price during the period where the demand for SGBs was low.
The recent rally seen in few of the tranches could be attributed to the considerable increase in price of gold.
Featured Image: Sovereign Gold Bonds