Golden Time to Invest in Gold Bonds

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All that Not Glitters are also Gold. :)

Gold is one of the precious metal, It is as precious as time. We compare phases as golden time or golden age etc. Gold trading has a long history. Discovered in ancient times, gold has been a sign of wealth and social position in many societies since it was first used as currency. Today gold is still an important material of trade and business.
Gold coins as medium of exchange was since from ancient times of India. They circulated as currency in many countries before the introduction of paper money. Once paper money was introduced, currencies still maintained an explicit link to gold (the paper being exchangeable for gold on demand).

Sir Isaac Newton compared the value of gold to silver in his system of measurement. Some people think that this was when the gold standard was first set.
Countries value gold as a measure of wealth and a base of exchange. Individuals value gold as insurance because paper money is not always certain. Gold continues to have effects on world financial markets today and will into the future.
In India People buy gold for a variety of reasons such as for its auspicious sentiment; as an investment (Gold continues to command long term value, a tag for being a safe haven); hedge against inflation; asset allocation, etc. Gold also carries a high perceived value and a high emotional quotient. It reinforces closeness of relationships. Gold coins in smaller denominations are also considered apt for corporate gifting and rewards for contests or for commemorative giveaways.

Many people think that Indians are gold crazy.

Though this statement cannot be completely negative, the truth is that Gold has always had a special significance for all ages. The old adage - all that glitters is not gold, also in a way underlines the importance accorded to Gold.  Gold lends itself as a commemorative medium to various engagements like golden anniversaries, golden jubilee, gold medals, gold credit card etc. In India people buy gold anytime and not only during special occasions like weddings, festivals or special events. Gold is also offered to Indian deities

Main reasons why Indians are interested in gold :

·         Gold is considered an equivalent for liquid cash: Gold is highly liquid and portable as a Security or Asset. It can be converted to cash anytime when an emergency arises and is considered a friend in need.
·         Gold is considered as a Status Symbol: Especially in India gold symbolizes wealth. In Indian weddings the Gold brought by the bride shows her family's status and wealth. It is believed that a bride wearing 24k gold on their wedding to bring luck and happiness throughout the married life.
·         Gold is a very good investment: Gold is an asset which has consistently increased in value and thereby considered as a safe and secure investment. In the last five years Gold has delivered over 20% YOY return. It is considered an effective diversifier which helps to reduce portfolio risk.
·         Gold is considered as gift item: It's precious and worthy across all cultures and times. The gold jewelry is given as gifts during weddings, festivals and other special occasions.
·         Gold has great religious significance: Gold is the symbol of the Hindu Goddess Lakshmi and considered highly auspicious. Gold is brought or presented on festivals like Dhanteras and Akshaya Tritiya. Toe rings are never made of gold as it represents the goddess of wealth and should not be soiled by touching a human's feet.
·         Great Ornamental Value: Who can resist gold ornaments? Women of every age and time have always loved wearing gold ornaments. Moreover, Gold ornaments are never out of fashion. It also may be remembered that wedding rings are also traditionally made of gold to mark a long lasting relationship.
·         Great value as Heirloom: Gold jewelry is something which can be passed down from one generation to the other as ancestral property. This is why people say Gold is forever! Planning for gold investment for your children’s marriage well in advance can be a very effective strategy since it will save valuable time and money during the marriage in future. Given that gold prices always tend to grow, slow, steady, and planned accumulation of gold for your children’s marriage will stand you in good stead.

Impact of Gold Imports on Indian economy:

Oil and Gold are top imports on this list. One can say that, Oil can be stated as necessity of the Indian economy. Gold on other hand has no such importance. It’s just Indian mentality that Gold investment is good as it gives higher returns and is less risky.
An increase in Current Account Deficit: As we know, gold bullion and raw form is used for minting currency. The more country purchases gold, the more the reserves dry up leaving the metal scarce in government's treasury. This needs to be noted from the fact that any slump/hike in sensex is accompanied sooner or later by change in price of gold.
Drain foreign reserve: This is interlinked with the CAD mentioned in point 1. Much like crude oil, rightly called black gold, a country has to dish out money in USD to procure the commodity.
The current account deficit CAD is a measure of the value of goods and services a country imports exceeding the value of goods and services it exports. The sharp decline in global crude oil prices has come as a boon for the government and has enabled it to slash its fuel subsidy bill significantly and boosted finances at a time when the economy is passing through a sluggish phase. Both oil and gold have enabled the government to show a better fiscal picture.
India had imported 199 tonnes of gold in the first six months of 2016, which is a 50.49% drop compared with 402 tonnes imported in the corresponding period last year.

Sovereign Gold Bond Scheme

Since then, the government has taken a series of steps to mobilize gold and keep the CAD within manageable limits.

The Bonds are issued by the Reserve Bank of India on behalf of the Government of India.
Sovereign gold bonds (SGBs) are government securities denominated in grams of gold. They are substitutes for holding physical gold where the issue and redemption is carried out in cash but indexed to the value of the underlying gold. The bond is issued by the Reserve Bank on behalf of the Government of India.
The gold monetization scheme aims to mobilize around 20,000 tons of idle gold lying in the country by encouraging institutions and individuals to deposit it with the government for interest. Finance Ministry data shows that 1,467 kg of gold has been deposited by just 86 depositors since the launch of the monetization scheme.
As investors will get returns that are linked to gold price, the scheme is expected to offer the same benefits as physical gold. They can be used as collateral for loans and can be sold or traded on stock exchanges.


·         The Sovereign Gold Bonds will be available both in demat and paper form.
·         The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.
·         They will carry sovereign guarantee both on the capital invested and the interest.
·         Bonds can be used as collateral for loans.
·         Bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
·         Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire.
·         Capital gain tax arising on redemption of SGB to an individual has been exempted. The indexation benefit will be provided to LTCG arising to any person on transfer of bonds. The department of revenue has said that they will consider indexation benefit if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption.


Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold. Minimum investment in the bond shall be 1 grams. The bonds can be bought by Indian residents or entities and is capped at 500 grams.

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