Fourth tranche of sovereign gold bond scheme from July 18

The fourth tranche of the government’s sovereign gold bond scheme will open from July 18-22, a person aware of the development told BusinessLine . The government is expected to announce the dates later today. The allotment date is set for August 5.

Sovereign gold bonds (SGBs) are government securities denominated in grams of gold. They are substitutes for holding physical gold where the issue and redemption is carried out in cash but indexed to the value of the underlying gold. The bond is issued by theReserve Bank on behalf of the Government of India.

In the new tranche, the government is likely to lower the minimum investment in SGBs to 1gm from the current floor of 2 gm. Since this is the first tranche of the FY17 fiscal, a new maximum annual limit of 500 gm applies to investors. However, the government is likely to revisit this investment cap – either raise it or do away with it altogether – depending on the response to next week’s issue, the source quoted earlier added.

In the first three tranches of gold bonds issued during the financial year 2015-16, about 4.50 lakh investors purchased total bonds equivalent to 4,908 kg, amounting to about Rs 1,320 crore.

The fourth tranche comes at a time when the commodity has touched a near three-year high following the Brexit vote, hurting consumer demand for physical gold. It did lower marginally earlier this week, however, mollified by improving US jobs data and the decreasing likelihood of the Federal Reserve raising interest rates for in a hurry.

The tax incentives announced in the Union Budget are also likely to come into force with this new tranche. In the FY17 Budget announcement, Finance Minister Arun Jaitley had proposed exempting SGBs from capital gains tax on redemption.

Long-term capital gains arising from the transfer of SGBs will be eligible for indexation benefits. The changes in tax treatment are likely to be part of the RBI notification later today, which will be issued after the Centre announces the newest tranche.

Earlier this week, stock exchanges BSE and NSE had launched online bidding platforms for SGBs, which will act as receiving offices for this tranche. The online platforms are expected to raise demand for SGBs in the demat form.

Last November, Prime Minister Narendra Modi had launched the Gold Monetisation Scheme and the Sovereign Gold Bonds (SGBs) scheme to meet the domestic demand for the precious metal while also trimming the import bill on physical gold. Official estimates peg gold imports at over 300 million tonnes annually.

The gold monetisation scheme aims to mobilise around 20,000 tonnes of idle gold lying in the country by encouraging institutions and individuals to deposit it with the government for interest. Finance Ministry data shows that 1,467 kg of gold has been deposited by just 86 depositors since the launch of the monetisation scheme.

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