Gold Schemes Guidelines Issued by Reserve Bank of India

This scheme was launched by the Government of India on October 30, 2015 as an alternative investment option to storing physical gold. Anybody who is an Indian resident, as defined under Foreign Exchange Management Act, 1999, can invest in SGB. Individuals, trusts, and Hindu Undivided Family (HUF), universities and charitable institutions are eligible. Individual investors whose residential status has changed from resident to non-resident can hold SGB till early redemption/maturity.

The RBI provides SGB issues in different tranches, which are available via brokers, banks and post offices. ROs (Receiving Offices) are authorised to receive application forms from eligible investors at the branches either directly or through agents.

Applications shall be received at branches during normal banking hours on the weeks of subscription as notified by GOI/RBI from time to time. Subscription of the form shall be made in prescribed application Form A.

Every application must be accompanied by the ‘PAN details’ issued by the Income Tax Department to the investor(s). Relevant additional details may be obtained from the applicants, where necessary.

Denominations of bonds are usually specified in multiples of grams of gold with 1 gram of gold as a basic unit. The minimum investment allowed for an individual or an institution is fixed at 2 grams of gold, with a yearly investment limit of not more than 500 grams for an individual.

All payments for subscription to SGB shall be accepted in Indian Rupees through cash up to a maximum of ₹20,000/- or cheque/ demand drafts/electronic banking. The cheque/ demand drafts shall be drawn in favour of the RO.

The payments for applications received for SGBs to be held in RDG Account shall be made through electronic banking only. On receipt of complete application as above, the ROs shall issue an acknowledgement receipt in Form B.

The customer may approach the Depository Participant, with a request for re-materialisation of the bonds with details of his holding. They may also specify the RO and bank account details (name of bank, branch, account number, IFSC and type of account) through which the bonds will be serviced pursuant to re-materialisation.

B. Key Features of the Scheme

The duration of the bond is 8 years, wherein you can choose an exit option after 5 years on the date of interest payment. RO/depository shall inform the investor about the date of maturity of the Bond one month before its maturity.

The Bond shall be repayable on the expiration of eight years from the date of issue of the bond. The price of the SGB will be in Indian rupees, and the closing price is based on the previous week's average closing price of gold worth 999 purity as published by IBJA (India Bullion and Jewellers Association Ltd).

On maturity and in case of premature redemption, the Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous week (Monday to Friday) for SGBs issued under tranche 1 to 9 and previous three working days for tranches issued thereafter at the rate published by the India Bullion and Jewellers Association Limited.

The redemption proceeds shall be credited to the bank account of the customer. The interest rate for SGB is calculated at 2.75% annually and the last SGB interest is cumulatively paid along with the principal at maturity.

The interest on the bonds, as applicable, shall be paid on a half yearly basis. The amount will be credited by RBI to the bank account of the holder.

The bonds may be used as collateral security for any loan. The creation of pledge, hypothecation or lien on the bonds shall be governed by Section 28 of the Government Securities Act, 2006 and Chapter VII of the Government Securities Regulations, 2007. The LTV ratio as applicable to any ordinary gold loan mandated by the Reserve Bank of India shall also apply to the bonds.

Disclaimer: The guidelines stated here refer to the RBI circular RBI/2021-2022/114 on ‘Sovereign Gold Bond Scheme of the Government of India (GoI) - Procedural Guidelines. 

B. When and why was the Scheme Implemented?

This scheme was introduced in 2015 by the Indian Government to mobilise physical gold held by institutions and households. The primary goal of this scheme is to make productive use of the gold available within the country, helping the nation reduce the reliance on gold imports and meet the required domestic requirements.

C. Key Features of the Scheme

The current rate of interest as notified by the Central Government is 2.25% p.a. on medium term deposit and 2.50% p.a. on long term deposits. Hence, customers can earn additional interest income along with the capital appreciation in gold.

The minimum deposit at any one time shall be 1015 grams of raw gold (bars, coins, jewellery excluding stones and other metals). There is no maximum limit for deposit under the scheme.

The deposit of gold made under the GMS with a designated bank in the account of the Central Government for a medium term period of 5-7 years or a long term period of 12-15 years or for such period as may be decided from time to time by the Central Government, referred to as Medium and Long Term Government Deposit (MLTGD).

The deposit of gold made under the GMS with a designated bank for a short-term period of 1-3 years known as Short Term Bank Deposit (STBD). All designated banks, Scheduled Commercial Banks (excluding RRBs), will be eligible to implement the scheme.

The Principal on STBD and MLTGD shall be denominated in gold. However, the interest on STBD and MLTGD shall be calculated in Indian Rupees with reference to the value of gold at the time of deposit.

A Medium-Term Government Deposit (MTGD) is allowed to be withdrawn any time after 3 years and a Long-Term Government Deposit (LTGD) after 5 years.

Persons eligible to make a deposit include Resident Indians [Individuals, HUFs, Proprietorship & Partnership firms, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations, Companies, charitable institutions, Central Government, State Government or any other entity owned by Central Government or State Government] can make deposits under the scheme.

Joint deposits of two or more eligible depositors are also allowed under the scheme and the deposit in such a case shall be credited to the joint deposit account opened in the name of such depositors.

Banks shall have a Board approved policy to identify the branches that can accept the deposits under the scheme. The policy shall inter-alia cover the processes involved in the identification of such branches and skill development of the dealing employees.

The policy shall also identify the minimum number of branches as designated branches in every State/UT where the bank has a presence. Tax implications on GMS shall be notified by the Central Government from time to time.

All designated banks shall give adequate publicity to the Scheme through their branches, websites and other channels. The quantity of gold will be expressed up to three decimals of a gram.

With effect from April 5, 2021, interest in respect of STBD shall be denominated and paid in Indian Rupee only. Redemption of principal at maturity will, at the option of depositor, be either in Indian Rupee equivalent of the deposited gold based on the prevailing price of gold at the time of redemption, or in gold.

The option in this regard shall be obtained in writing from the depositor at the time of making the deposit and shall be irrevocable. Any premature redemption shall be in Indian Rupee equivalent or gold at the discretion of the designated banks.

All STBDs made prior to the issue of this direction will continue to be governed by their existing terms and conditions. The rate of interest on such deposits will be decided by the Central Government and notified by the Reserve Bank of India from time to time.

The designated banks shall take steps to enter into agreement with a sufficient number of CPTCs (collection and purity testing centres), which are certified by the Bureau of Indian Standards and the government.

Disclaimer: The guidelines stated above refer to the RBI circular RBI/2015-16/211 on ‘Gold Monetization Scheme, 2015.’

Gold schemes introduced by the Government of India, such as the Sovereign Gold Bond (SGB), Indian Gold Coin (IGC) and Gold Monetisation Scheme (GMS), are significant investment initiatives you can consider. Remember, like any financial decision, this investment arena demands adequate research and proper attention. So, it is important to assess the details and scheme guidelines thoroughly to make a smart investment decision that can help you maximise your investment in gold schemes.

All the information is provided in good faith, however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information. Any reliance you place on such material is therefore strictly at your own risk. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS. EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED OR EXCLUDED BY AGREEMENT.”