Sovereign Gold Bonds 2015 — Earn 2.75% Interest by Investing in Gold

Applications were issued from 5–20 November for investing in bonds backed by gold purchased by the RBI on behalf of the government. Depending on demand, the government could decide to close the issue early. The bond was issued on 26 November 2015.

Investors could buy a minimum of 2 grams and a maximum of 500 grams per year. The Reserve Bank fixed the public issue price at ₹2,684 per gram. In the case of joint holding, the limit applies to the first applicant.
A fixed rate of interest of 2.75% per annum (payable every 6 months) on the initial value of investment.
The bonds have a maturity period of 8 years, with an exit option from the fifth year. Holdings can be redeemed in multiples of one gram. The redemption price is based on prevailing gold prices at the end of the tenure — if the price of gold has decreased, an option to extend the tenure is offered.
Gold bonds were sold through banks and designated post offices, and can be used as collateral for loans from financial institutions.
TDS is not applicable on the interest component, but interest earned on gold bonds is added to taxable income. Capital gains are taxed at the applicable slab rate if the bonds are sold before 3 years; if sold after 3 years, a capital gains tax of 20% with indexation benefits applies.
Gold bonds can also be held in demat form. ASBA option in Kotak Mahindra Bank had already been opened for investment in online mode.
The bonds were listed on the exchanges, so investors had an option to exit even before five years.
An advantage over mutual funds and other ETFs is the benefit of no expense ratio.
This can be suitable to hedge a portfolio against overall risk.
The price of the bonds was fixed in Indian Rupees on the basis of the previous week's (Monday–Friday) simple average closing price for gold of 999 purity, published by the India Bullion and Jewellers Association Ltd (IBJA).

Originally published November 2015, describing that year's tranche of the Sovereign Gold Bond scheme. The RBI has issued further tranches since with different prices and terms — check the RBI's current notifications before investing.