Sovereign gold bonds: Govt changes rules to get better response

On Friday, the central government announced changes that have increased the chances of sovereign gold bonds to succeed or to get a better response than in the past.

The most important change is that these bonds will be available almost 'on tap', as the issue that opened on Monday will remain so till December 27. However, the issue will have weekly price fixation.

According to what the Reserve Bank announced, bond subscription will open every Monday and close on Wednesday. The price will be the previous three trading days' average for 999-purity. The bonds sold between October 9 and 11 will be issued on October 16 and get listed on the stock exchanges two weeks after that. The bond that opened on Monday is priced at Rs 2,956 a gramme; for online investment, it is Rs 2,906 a gramme. They will again open for subscription on October 16 and remain so till October 18. This will continue till December 27, a Wednesday.

The second important change is weekly price fixation. Over such a long period, this feature will allow investors to plan buying as with physical coins on chosen occasions, such as the auspicious buying on Dhanteras next week or for gifting occasions which are date-specific. In the past when such occasions came, bond issues were often not open. Such planning was so far possible only in physical coin buying or with exchange-traded funds (ETFs). Investors could now also make a systematic investment plan for bond buying.

The government also raised the annual investment limit per person from 500g to four kg. For trusts and like entities, it has been raised to 20 kg. Shekhar Bhandari, senior executive vice-president at Kotak Mahindra Bank, said: "The higher limit will attract high net worth investors who were finding the 500g limit inadequate. The 20 kg limit for trusts is good, as it is almost Rs 6 crore, which can lure them to invest the prescribed limit of their corpus in bonds."

The period the bonds will be open, from October to December, covers all important festivals, from Dhanteras/Diwali to Christmas. Also, this is the period of arrival of kharif produce and farmers get money, which they traditionally partly invest in gold.

On the down side, the earlier Rs 50 a gramme of discount for investors in these bonds will now be available only to those who buy it digitally or online, not from a bank branch or post office. In future, according to sources, the annual interest rate of 2.5 per cent for the gold bonds on the initial investment price will be subject to review and brought in line with the market trend like other government sponsored saving schemes.

While several features of ETFs will now be available with these bonds, liquidity in the former is much better. Stock exchanges will need to work on this aspect.

Welcome Move

• Bond subscription will open every Monday and close on  Wednesday
• The price will be the previous 3 trading days’ average for 999-purity
• The bonds sold between October 9 and 11 will be issued on Oct 16 and get listed on the stock exchanges two weeks after that
• The bond that opened on Monday is priced at Rs 2,956 a gram; for online investment, it is Rs 2,906 a gram
• These will again open for subscription on October 16 and remain so till Oct 18
• The govt has raised the annual investment limit per person from 500g to 4 kg and for trusts, it  is 20 kg