Investment limit in gold bonds raised





The government has increased the annual investment limit in Sovereign Gold Bonds from 500 g to 4 kg.

The government has raised the annual investment limit in Sovereign Gold Bonds (SGBs) to 4 kg per person from the earlier 500 gm. It has also relaxed other norms to make SGBs more attractive to buyers. The 4 kg ceiling will be applicable per financial year and will include the SGBs purchased from the secondary market, according to an official statement released after the Cabinet made this decision. The limit has been kept as 20 kg for trusts and similar entities, notified by the government from time to time.

The ceiling on investment will not include the holdings kept as collateral by banks and financial institutions."SGBs will be available `on tap'. Based on the consultation with NSE, BSE, banks and Department of Post, features of product to emulate `on tap' sale would be finalised by Finance Ministry," reads the statement.

The Finance Ministry has been allowed to design and introduce variants of SGBs with different interest rates and risk protection or pay-offs that would offer investment alternatives to different category of investors.

The SGB scheme was notified by the government on 5 November 2015 after the approval of the Cabinet. The main objective of the scheme was to develop a financial asset as an alternative to physical gold. The target was to shift part of the estimated 300 tonnes of physical bars and coins purchased every year for investment into demat gold bonds. The target mobilisation under the scheme was `15,000 crore in 2015-16 and `10,000 crore in 201617. The amount so far credited in the government account is `4,769 crore.In view of the less-than-expected response to the scheme, and considering its bearing on the current account deficit and the overall macroeconomic health of the country, the increased limit and other changes seek to boost this scheme.

Interested in buying SGBs?

Observers point out that SGB trading volumes are not very high in the secondary market. On a typical day, the combined traded volumes of the sev en series are around 2,000-3,000 bonds. If you want to buy 10-20 bonds, you can get lower prices in the secondary market. But if someone wants to buy a larger quantity, say 100-200 bonds, he will have to bid higher prices. Even so, a patient investor can gradually accumulate SGBs from the secondary market at prices lower than the issue price of fresh SGBs.

For instance, the eighth tranche of the SGB was priced at `2,901 per gram. But savvy investors could have purchased SGBs of earlier tranches at a lower price from the secondary market. However, very few investors actually take that route. Though earlier tranches of SGBs are trading at lower prices in the secondary market (by 5-6%), most investors prefer to buy directly from the issuer

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