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Next Sovereign Gold Bond Issue Opens On 11 May: Should You Invest?

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On Friday, the Reserve Bank of India (RBI) released a notification on the issue price of the latest tranche of the SGB scheme that will open on 11 May. It will be Series II of the Sovereign Gold Bond Scheme 2020-21 and is a lucrative alternative to physical gold investment if you are looking for long-term options.

Series I was issued in April, around the time of Akshaya Tritiya.

Next Sovereign Gold Bond Issue Opens On 11 May: Should You Invest?
 

Details on Sovereign Gold Bond Scheme 2020-21-Series II:

  • Issue date: 11 to 15 May 2020
  • Issue price: Rs 4,590 per gram
  • Discount: Rs 50 per gram discount will be offered to who apply and pay online. For such investors, the issue price will be Rs 4,540 per gram.
  • Eligibility: Only residents, HUFs, Trusts, Universities and Charitable Institutions can participate.
  • Denomination: The bonds will be denominated in multiples of grams of gold with a basic unit of 1 gram.
  • Tenor: 8 years with exit option after 5th year to be exercised on the interest payment dates.
  • Minimum investment: 1 gram of gold.
  • Maximum limit: 4 kg for individuals and HUF and 20 Kg for trusts and similar entities per financial year.
  • Interest rate: 2.50 percent per annum payable semi-annually on the nominal value.
  • Redemption price: The redemption price will be in Indian Rupees based on previous 3 working days simple average of the closing price of gold of 999 purity published by IBJA.

What is Sovereign Gold Bond Scheme?

The Sovereign Gold Bond (SGB) Scheme is government security that measured in the units of gold. It means that when you own a certain weight of gold through this scheme, you will be owning the same value in the form of a bond.

This allows you to reap the benefits of gold rates as well as interest earned on the bonds at the time of their maturity.

These are issued by the Reserve Bank of India (RBI) and their issue is announced in advance through notifications.

The scheme was launched in November 2015 to reduce the demand for physical gold and move this part of domestic savings used for the purchase of yellow metal into financial savings. It allows residents of India to hold gold in Demat form.

 

How to buy SGBs?

The Sovereign Gold Bonds are sold through scheduled commercial banks (excluding RRBs), SHCIL, designated Post Offices, NSE and BSE, either directly or through their agents. These can be purchased over their websites and from branches. However, amid the nationwide lockdown, the online mode maybe your best option.

You can pay the issue price of these bonds in cash (only up to Rs 20,000), cheque, bonds, DD or electronic transfer. The amount to be invested is flexible. You can choose how much you want to invest.

Taxation

The capital gains tax arising on redemption of SGB to an individual has been exempted only if held till maturity (8 years). The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.

Interest earned semi-annually is fully taxable in the hands of the investor.

Should you invest?

In 2020, gold has become the best performing asset class as equity or equity-related investments have become risky due to the uncertainty brought by the COVID-19 outbreak.

As an option to invest in gold, SGBs look attractive, as these can be bought online and come with government guarantee.

If held for the whole tenor of 8 years (till maturity), the investor will make gains from changes in the metal's prices as well as interest (coupon) income.

If you are looking to make a long-term investment in gold using SGBs or a bulk investment, experts suggest spreading the investments over the various tranches depending on the investment amount.

There will be four more tranches this financial year on- 8 June, 6 July, 3 August and 31 August.

Since you can buy as little as one gram, you can invest in a staggered manner over time as this will provide them with the benefit of rupee cost averaging.

These are tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI. This means that even if you fail to participate in the current issue, you can purchase them or bonds from previous issues on NSE or BSE through a registered stockbroker from subscribers who wish to sell them.

Similarly, one can also exit by selling the bonds at the exchanges before maturity. It will also allow you to buy previously issued bonds that are closer to expiry if they are available at a cheaper rate.

Disclaimer

The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

Story first published: Saturday, May 9, 2020, 11:06 [IST]
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