Should You Subscribe SGB 2023-24 (Series I) Priced At Rs 5,926?

The issue price for the Sovereign Gold Bonds 2023-24 (Series I), according to the Centre, has been fixed at Rs 5,926 per gram, the highest price disclosed during Q4. In the first half of FY24, the two tranches i.e. 2023-24 Series I and 2023-24 Series II of gold bonds will be issued hence from June 19 through June 23, 2023-24 Series I will be released as the first tranche. The 2023-24 Series II second issue will be released between September 11 and September 15, 2023. Series I FY24 will be released on June 27, and tranche II FY24 will be issued on September 20.

"In terms of Government of India Notification No.4(6)-B(W&M)/2023 dated June 14, 2023, Sovereign Gold Bonds 2023-24 (Series I) will be opened for subscription during the period June 19-23, 2023 with Settlement date June 27, 2023. The issue price of the Bond during the subscription period shall be Rs 5,926 per gram, as also published by RBI in their Press Release dated June 16, 2023," said the Ministry of Finance in a statement.

The Centre had announced an issue price of Rs 5,611 per gram of gold in Q4 FY23, Rs 5,409 per gram in Q3FY23, Rs 5,091 per gram in Q2FY23 and Rs 5,041 per gram in Q1FY23.

The most popular way to obtain exposure to gold remains through sovereign gold bonds (SGBs), which offer an additional 2.5% in interest annually and no capital gains tax. For investors who apply online and pay with digital methods, a discount of Rs 50/gram will be offered. The nominal amount will earn investors additional interest at a rate of 2.50% annually.

Commenting on the capital gain tax on SGBs, Sachin Jain, Research Analyst of ICICI Direct Research said "If these bonds are sold in the secondary market before maturity, capital gains arising on such transaction will taxed @ 20% with indexation if sold on or after three years and would be subject to marginal tax rate if sold before three years."

"The SGBs will be sold through Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited," said the Ministry of Finance in a statement.

Should You Subscribe SGB 2023-24 (Series I)?

"Gold is the best way to hold US dollar asset in the portfolio. Future US dollar requirement also necessitates gold requirement for an Indian investor's portfolio. US dollar may be required for financial goals like children's study in a global management or other institute, foreign vacation, buying any foreign asset in future, etc. Gold is the best way to own a dollar asset as all other asset classes like overseas funds, gold mining companies, etc, have higher underlying volatility. Sovereign gold offers one of the best way to hold gold if interment liquidity is not in consideration. For Indian investors, gold provides an effective diversification to the overall investment portfolio. Accordingly, investors may consider allocating 5-15% of their overall portfolio in gold," said Sachin Jain, Research Analyst of ICICI Direct Research.

"While the future outlook matters the most, historical returns also give an idea whether to be overweight or underweight on any asset class. Whenever any asset class had done well (higher return than long term average), it is generally not a time to be overweight. Investors could be either underweight or equal weight based on the future outlook. Currently, it is time to be equal weight on the overall asset allocation as while historical return is higher, the outlook stays positive given we are at the fagend of the interest rate hike cycle particularly in the US. While inflation concerns globally have moderated, they still remain far above desired levels (US average inflation for CY23 is expected at 3% while US Fed target is 2%). Generally, we recommend 5-15% as the normal range of allocation to gold. Hence, investors may maintain around 5-10% allocation to gold," Sachin Jain further added.

"The latest Union Budget has made investment in gold through Gold ETFs/Gold funds less attractive. Gold ETFs/Gold funds will no longer have benefits of long-term capital gains (LTCG) tax and indexation and will be taxed at the marginal tax rate from April 1, 2023. Accordingly, investment in SGBs has become relatively even more attractive compared to other modes of investment. Investment in gold should always be considered from an asset allocation perspective as long period of sub-optimal returns and returns in a non-linear pattern are an inherent feature of gold price movement," he stated.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.