Sovereign Gold Bond

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Context (IE): The Ministry of Finance discontinued medium- and long-term deposits under the Gold Monetization Scheme.
However, short-term bank deposits, which are under the ambit of banks in the scheme, will continue at the discretion of individual banks based on the commercial viability as assessed by them.
Existing medium & long-term government deposits shall run till maturity unless prematurely withdrawn.
It is the 2^nd gold scheme to face closure by the government in recent months amid a sharp surge in gold prices. The Centre had earlier discontinued the fresh issuance of sovereign gold bonds.

About Gold Monetization Scheme

It was launched in 2015 modifying the “Gold Deposit Scheme (GDS)” and Gold Metal Loan Scheme (GML).
Objective: To mobilise gold held by the country’s households and institutions and facilitate its use for productive purposes, as well as to reduce the country’s reliance on gold imports in the long run.
3 Components of Scheme:
1. Short-term bank deposit (1-3 years)
2. Medium-term government deposit (5-7 years)
3. Long-term government deposit (12-15 years)
Interest Rates Offered: GMS allows gold depositors to earn interest on their bank deposit accounts.
- Short Term Deposits: The interest rate is decided by the banks on the basis of the prevailing international lease rates, other costs, market conditions, etc., and is borne by the banks.
- Medium and Long Term Deposits: The Interest rate was decided by the government, in consultation with the RBI and borne by the Central government.
  - The interest rate was fixed at 2.25% for medium-term bonds and 2.5% for long-term bonds.

Minimum Limit: 10 gm of raw gold (bars, coins, jewellery excluding stones and other metals).
Maximum Limit: There was no maximum limit for deposits under the scheme.
Eligible Banks: All Scheduled Commercial Banks, excluding Regional Rural Banks (RRBs).
Eligibility for Depositing: Individuals, Hindu Undivided Families (HUFs), Proprietorship & Partnership firms, Trusts, including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations, Companies, charitable institutions, Central Government, State Government, etc.
- Joint deposit of two or more eligible depositors is allowed under the scheme.

Sovereign Gold Bond Scheme (SGB) is a government initiative in India, launched in 2015 under the Gold Monetisation Scheme.
The RBI issues these bonds on behalf of the Government of India.

To provide an alternative to holding physical gold.
To reduce the demand for physical gold.
To invest a part of the Physical Gold Bars and coins that are purchased into financial savings in the form of gold bonds.

The bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
Tenure: 8 years with an exit option in the 5^th, 6^th, and 7^th years.
Minimum permissible investment is 1 gram of gold.
Maximum limit of subscribed shall be 4 Kg for individuals, 4 Kg for HUF and 20 Kg for trusts.
The investors are compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.
Sovereign Gold Bonds can be used as collateral for loans.
The interest on Gold Bonds shall be taxable as per the provisions of the Income Tax Act, 1961.
The RBI/Government doesn’t promise to give you physical gold upon maturity. Instead, they promise to give you the equivalent value in rupees based on the latest gold price at that time.