The RBI's Sovereign Gold Bond (SGB) Scheme 2021-22 - Series 5 was open for subscription from 9th August to 12th August, 2021, yesterday. The allotment date is 17th August. SGB is a safe and easier form to invest in gold. But why are buyers concerned with the SGB Series 5 this time?
The subscription date just closed yesterday, and the prices of gold in the international market and Indian markets were dropping lower. The price of Sovereign Gold Bonds are linked to the price of 24 carat gold. Yesterday the price of 24 carat gold was Rs. 4654 per gram. The price today is Rs. 4686 per gram.
The prices of gold have been sinking sharply across the Indian markets. Within 1 week the prices went down Rs. 8400 per 100 grams of gold in India.
On 6th August the price was Rs. 47700 per 10 grams and the price today is Rs. 46860 per 10 grams. Yesterday, when it was the last date for the SGB subscription, and the rate of 24 carat physical gold was Rs. 46540.
So, investors who purchased the SGB series 5, did they make a better decision? Or investing in physical gold could be a better choice - as the prices are considerably lower than the SGB subscription price now?
The Sovereign Gold Bond (SGB) Scheme 2021-22 Series V issue price was Rs. 4,790 per gram and Rs. 47900 per 10 grams. Online investors get an additional Rs. 50 per gram discount on the Sovereign Gold Bond that was Rs. 47400 per 10 gram. So, anyhow the SGB subscription price was actually higher than the Indian 24 carat physical gold price. But there are many perks of investing in SGB.
In case of physical gold there might be risks of loss, theft, burglary etc. Also if the investor tries to keep the gold coin or bar or ornament protected, the bank locker storage cost will have to be paid. For SGB the RBI keeps the gold safe on behalf of the union government. There will also be GST and making charges for physical gold which is not included in SGB - that is a gain. The investor will also get a regular return of 2.5% yearly interest (payable semi-annually) on the total amount invested. SGB, in that sense, is a unique opportunity for any gold investment. Additionally, there is no long-term capital gain tax on maturity of SGB. The cost of the transaction is the lowest for SGB.
However, if SGB is not a suitable option for an investor, there are always options of gold ETFs or gold mutual funds. This can certainly diversify the field of investment.