Gold Schemes Guidelines Issued by the RBI

This scheme was launched by the Government of India in November 2015 as an alternative investment option to storing physical gold. Anybody who is an Indian resident, as defined under the Foreign Exchange Management Act, 1999, can invest in SGB. 

Individuals, trusts, 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. As per the RBI’s gold scheme guidelines, eligible investors can submit their applications to the ROs (Receiving Offices) at the branches either directly or through agents.

Branches can receive applications during normal banking hours on the weeks of subscription as notified by GOI/RBI from time to time. You need to make the subscription of the form in the prescribed application Form A.

The ‘PAN details,’ issued by the Income Tax Department, must accompany your application. Relevant additional details may be obtained from the applicants, where necessary. The RBI usually specifies the denominations of bonds 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 one gram of gold. The yearly investment limit of not more than 4 kg also applies to an individual. The maximum limit for subscription for trusts and other similar notified entities is 20 kg. 

Banks generally accept cash of up to ₹20,000 for investment in SGBs. In case of a higher investment, you can pay through a cheque, demand drafts, or electronic banking. Note that you have to draw a cheque or demand draft in favour of the RO.

The payments for applications received for SGBs to be held in RDG (Retail Direct Gilt) Account shall be made through electronic banking only. On receipt of the 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 the details of his holding. They may also specify the RO and bank account details through which the bonds will be serviced pursuant to re-materialisation. The information can include:

• Name of bank and branch

• Account number

• IFSC

• Type of account

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. According to the RBI gold scheme laws, the RO/depository shall inform the investor about the date of maturity of the Bond, 1 month before its maturity.

The Bond shall be repayable on the expiration of 8 years from the date of issue of the bond. The price of the SGB will be in Indian Rupees. 

The closing price depends on the previous 3 business days’ average closing price of gold worth 999 purity as published by IBJA (India Bullion and Jewellers Association Ltd). 

The RBI guidelines note that “On maturity and in case of premature redemption, the Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on a simple average of the 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 2.50% 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.

You can use the bonds as collateral security for any loan. The following laws govern the creation of a pledge, hypothecation, or lien on the bonds: 

• Section 28 of the Government Securities Act, 2006 

• Regulations 21 and 22 of the Government Securities Regulations, 2007

The LTV ratio for such loans against bonds will be similar to the standard gold loan RBI rules.

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

B. When and Why was the Scheme Implemented?

Introduced in 2015, this scheme aims to mobilise physical gold held by institutions and households. The primary goal of this scheme is to make productive use of the gold available, 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 deposits 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 10 grams of raw gold (bars, coins, jewellery excluding stones and other metals). There is no maximum limit for deposits under the scheme.

These GMS deposits with a designated bank in the account of the Central Government are referred to as Medium- and Long-Term Government Deposit (MLTGD). The government notifies this period, which currently stands at:

• 5-7 years for a medium-term period 

• 12-15 years for a long-term period 

The GMS deposit for a short-term period of 1-3 years is known as Short Term Bank Deposit (STBD). As per the gold schemes guidelines by the RBI, all designated banks, Scheduled Commercial Banks (excluding RRBs), are 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.

You can withdraw a Medium-Term Government Deposit (MTGD) any time after 3 years and a Long-Term Government Deposit (LTGD) after 5 years.

Persons eligible to make a deposit under this scheme include: 

• Resident Indians, such as Individuals and HUFs 

• Proprietorship & Partnership Firms

• Trusts, including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations

• Companies and Charitable Institutions 

• Central Government, State Government, or any other entity owned by Central Government or State Government 

You can make joint deposits with two or more eligible depositors under the scheme. 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 the 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. According to the RBI’s guidelines, the Central Government shall notify tax implications on GMS from time to time.

The guidelines also state that 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 the depositor, be in the following forms: 

• Indian Rupee equivalent of the deposited gold based on the prevailing price of gold at the time of redemption

• In the form of 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 an 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 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. This will help you maximise your investment in gold schemes.

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