Stocks

Gold bonds: banks face competition from brokers

K RAM KUMAR K RAGHAVENDRA RAO Mumbai | Updated on January 17, 2018

Better connectivity with clients a major advantage for broking community: bankers







With the government roping in BSE and NSE brokers, banks are worried about the competition they will face for selling sovereign gold bonds (SGBs).

Bankers say stock market brokers have better connect with the investor community. Moreover, the prospect of earning 1 per cent commission could see them going all out to sell SGBs to their clients.

The first three tranches of the bonds were sold through scheduled commercial banks, Stock Holding Corporation of India (SHCIL) and designated post offices. Non-banking finance companies, National Saving Certificate agents and others could act as agents to collect the application form and submit to banks and post offices.

BSE, NSE included

For the latest SGB tranche, BSE and NSE have been included as receiving offices, apart from commercial banks, SHCIL and designated post offices.

According to BSE officials, the exchange has conducted road-shows in Kolkata, Kochi, Mumbai, Delhi, Chennai, Ahmedabad, Bangalore, Hyderabad, Jaipur, and Indore, among others, to make its members aware of the method to place orders on behalf of customers for purchase of SGBs from July 18-22.

BSE, in a statement said, it will pass on the entire 1 per cent commission to its members to promote the purchase of SGBs by retail investors. 

Bidding session on the BSE will be available on its sovereign gold bond platform for the benefit of members and investors.

A senior public sector bank official said stock market brokers may have an edge in selling gold bonds to their clients, who are likely to be savvy investors themselves and understand the importance of asset diversification. Getting brokers involved in SGB issuance could give traction to subscriptions.

Last minute rush possible

“Since investors prefer to wait and watch the movement of gold prices in the spot market, most subscription decisions will be made on the last two days of the SGB issue.

“If the spot gold price moves higher than the SGB issue price (of ₹3,119 a gram for the fourth tranche) then subscriptions will be higher.

“If it edges lower, the subscriptions could be tepid,” explained the banker.

He suggested that it would be better for investors to spread their investments in SGBs over multiple tranches to get the benefit of averaging of the price of gold.

The minimum subscription for the SGB is one gram (two grams in the previous three tranches). The maximum subscription is capped at 500 grams (a year). Interest rate on the bonds is 2.75 per cent, payable every six months on the initial investment.

For the fourth tranche, capital gains tax arising on redemption of SGB to an individual has been exempted. Further, indexation benefit will be provided to long-term capital gains arising to any person on transfer of bonds.

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

Published on July 19, 2016

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