This time occasion- wise the government has just gone right by making the issue of Sovereign Gold Bonds (SGBs) available for investment just ahead of Dhanteras-Diwali, which are considered auspicious festivities for buying of gold. But price-wise not everyone can afford to buy the precious yellow metal at such high prices. For the current issue, the centre has decided price of Rs. 5177 per gm, while to online investors a rebate of Rs. 50 per gm is available.
And now here are given compelling reasons why you can invest in SGBs at even such current price level:
1. Uncertainty on many front will be good for gold going forward too:
Gold since the start of the year has rallied a significant over 30% and until and unless things on several grounds are crystal clear, gold prices will boom only.
The things here in we are mentioning are:
1. Covid 19 situation in the US, Europe and world over
2. Availability of vaccine for Covid 19 treatment as it will once again reinstate investors' confidence in sooner than expected global economic recovery from the pandemic
3. Stimulus announcement by the US which is expected to be larger in the Presidency of Joe Biden and when central government pushes for more of stimulus measures and have dovish stance, gold tends to gain.
4. Biden's taking over as the US Presidency
5. Brexit conundrum is resolved
6. Zero or negative interest rate in most economies also boost safe haven's appeal
2. Statistics prove how investors in first SGB tranche fared in comparison to Equity:
While equities are said to rule in long term performance-wise i.e. precisely 5-10 years horizon, investors in the first tranche of SGB that came up in November 2015 (with government's aim at diverting Indian households' money into paper form of gold) priced at Rs. 2684 per gram considering the latest price have seen a whopping 92% growth in a span of just 5 year, while equities have underperformed rallying just 57% on the Nifty. At the close of November 9, 2015, Nifty was at 7915, while today it closed at a new high of 12461.
3. Interest and tax advantage:
These SGBs provide dual advantage i.e. in terms of additional return or interest rate of 2.5% per annum payable half-yearly plus at the maturity capital gains made from SGBs is tax-exempt. Notably, SGBs carry a maturity of 8 years but can be redeemed after 5 years of investment on the interest payable date.
4. Equities to not scale too much:
Given the sharp run up in equities which after the Covid 19 led global market rout and have shed all the 2020 gains and in fact hit new highs on both the Indian indices today, experts opine that valuations are stretched and equities have rallied too fast too soon and now the upside is very less. So, in the short term of say 1 year, while equities and bonds will show under-perfomance, what asset may rule in the time to come is gold and may be real estate.
5. You need to just right with your asset allocation and portfolio diversification strategy:
One needs to have just the right mix of investment products in one's portfolio and in the current regime, experts suggest allocation of up to 20% in gold for conservative investor class, while moderate investor can have 5-10% of allocation into gold.
6. You can get better rates on SGB in comparison to market rates:
As per current rates, gold in the spot market of 24K is priced at Rs. 52230, while investors can get 1 gm of SGB for Rs. 5127 (nominal value of bond based on the simple average closing price for gold of 999 purity -Rs. 50 discount for online bid), translating into a discount of Rs. 960 per 10 gm.
Remember SGBs are denominated in multiples of gram(s) of gold with a basic unit of 1 gram. So, if you as a naïve investor do not have holdings into gold, you can buy into the precious metal in the current festive times for gains in the future and bi-yearly basis through interest payment.