By Ruma Dubey

Try and tempt us Indians with some substitute for gold? Maybe it could be another gold-plated trinket but really speaking, no one can do that – wean Indians away from gold. And the RBI is trying to lure these very same Indians with Gold bonds. How exciting does that sound? As flat as a Sprite bottle lying open for over a day?

• Aim – an alternate to buying physical gold in the form of bonds while earning an interest on the deposit.
• This is what RBI hopes one would buy for Dhanteras this Diwali – a gold bond instead of gold.
• This will be like any other bond – issue price will be Rs.2,684 per gram. Investors can buy a minimum of 2 units or 2 grams and a maximum at 500 grams per fiscal year. So if you have Rs.5400, you can buy two bonds.
• The price of the bond will be linked to that of gold price – if gold price goes up, your bond value will also go up and vice versa.
• These bonds can be redeemed as low as one gram or one unit and when you redeem, you will get the price of the then existing gold price.
• Unlike physical gold, which just sits there gathering dust in your locker, the bond will earn an interest of 2.75%.
• The bonds have a maturity period of 8 years, with exit option from the fifth year.
• And yes, they will be listed on the exchanges thus giving investors an option to exit before five years. The caveat – the volumes need to be good to get this exit.

So far so good. Till here, it all sounds and looks hunky dory. It is indeed a much better option than holding physical good, earning you money while sitting idle while its value appreciates along with gold prices. But…there is always a but.

The spoiler is the tax.

• TDS is not applicable on the interest component, but interest earned on gold bonds will be added to the income and taxed.
• And then there is capital gain tax too if sold before three years – exactly like physical gold. Sell after three years and pay 20% tax but with benefits of indexation - cost of acquisition will be adjusted against inflation in the value of asset.

Well, the intention is good but in our country it might not take off. The biggest reason being that most of the gold transactions which happen in our country today are in cash.  Gold and land attract the maximum black money. So how many of these buyers will shift to gold bonds?

This scheme might find takers mostly from institutions, companies and yes, temples who have some of the largest amount of gold stashed away. But the people – there will be very few interested. Maybe the discerning few who want to spread their basket of risk. Only the one who is interested in gold will get tempted to buy this bond. It’s pointless to compare this bond with fixed deposits and such other schemes.

It’s actually not a bad scheme as you get the benefit of rising gold prices without having to pay VAT, making charges and other sundry expenses we have with physical gold. At the same time, it earns you interest too. But tax.....

Any takers? Somehow, the James Bond movie might do much better than this Gold bond!