The second tranche of the government-run Sovereign Gold Bond (SGB) scheme will open for subscription from Monday, May 11.

The Reserve Bank of India (RBI) has said the issue price for the next tranche of Sovereign Gold Bonds (SGB), part of the central government’s market-borrowing programme, has been fixed at Rs 4,590 per gram of gold.

                                       LEARNING WITH TIMES

SGBs are government securities denominated in grams of gold and are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.

The bond is issued by RBI on behalf of the government. The investors receive the ongoing market price at the time of redemption or premature redemption. SGB offers a superior alternative to holding gold in physical form and also earns periodical interest.The bonds are held in the books of RBI or in Demat form eliminating the risk of loss of scrip etc.

Residents in India as defined under the Foreign Exchange Management Act, 1999, are eligible to invest in SGB. Individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions are also eligible. Joint holding is allowed. The minor can apply and  The application on his behalf of has to be made by their guardian

The bonds are issued in denominations of one gram of gold and in multiples thereof. The minimum investment in the bond shall be one gram with a maximum limit of subscription of 4kg for individuals, 4kg for HUF and 20 kg for trusts and similar entities notified by the government.

Though the tenor of the bond is 8 years, early encashment or redemption of the bond is allowed after the fifth year from the date of issue on coupon payment dates. The bond will be tradable on exchanges, if held in Demat form. It can also be transferred to any other eligible investor.

These securities are eligible to be used as collateral for loans from banks, financial institutions and Non-Banking Financial Companies (NBFC).

Interest on the bonds will be taxable as per the provisions of the Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted.