Sovereign Gold Bonds (SGBs) launched way back in the year 2015 were aimed at channelizing households' investment into gold into this digital form of gold which is also a financial investment. This investment option is lucrative than physical gold in many ways such as it provides an interest earning of 2.5% per annum payable half-yearly, does not entails any storage cost (being maintained in demat), no local taxes nor does poses any risk of theft, not to forget capital appreciation i.e. seen with physical gold also. And on redemption at maturity, the capital gains made are exempt from taxation implication.
Now you also have an opportunity to invest in these SGBs as the SGB 2020-21 series IX is open for subscription from Monday (December 28, 2020). Here are the fine details on the investment avenue and how you can get maximum gains out of SGBs:
1. Details of SGB 2020-21 Series IX:
SGB 2020-21 Series IX opened for subscription on December 28, 2020 (Monday) and will be available until January 1, 2021 (Friday).
Issuance date: January 5, 2020
Issue price of Sovereign Gold Bond Scheme 2020-21 - Series IX: Rs. 5000 per gm of gold. "The nominal value of the bond...Works out to Rs 5,000 per gram of gold," the RBI said. Notably, those who invest via the digital route i.e. pay for SGB through digital payment will be able to get Rs. 50 per gm discount.
Who can invest in SGBs?
SGB are sold to resident individuals, HUFs, Trusts, Universities and Charitable Institutions. The minimum permissible investment is 1 gram of gold while the maximum limit for subscription is 4 kg for individual, 4 kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March) notified by the Government from time to time.
2. How investors can maximize gains from SGB investment?- Points To Note
• First of all as with other investment options, one needs to be certain of one's investment goal while investing in SGBs i.e. their financial goal in quantum, liquidity and time horizon.
• Asset allocation should also be given heed to i.e. one should buy only that much amount of SGBs that does not disturbs his or her overall portfolio. An allocation of 5-10% in gold in the overall financial portfolio is considered ideal.
• The entry price in SGB is also crucial and at the current issuance price of Rs. 5000 or Rs. 4950 per gm, it is cheaper than market rate as the prices of 24K gold as on December 30, 2020 is Rs. 5023 per gm (without GST). Over the last 8 to10 years the prices of precious yellow metal have appreciated.
• Then though the SGB investment is allowed redemption after 5 years of holding period, the income tax exemption shall not be available if redeemed in 5 years. Also, SGBs held until maturity i.e. 8 years are exempted from capital gains tax implication. And for maximum gains from SGBs, investors should remain invested until maturity and premature redemption of SGB is a strict no-no. Also, remember here that the redemption at maturity shall be in cash only.
3. List of SGB issuance dates for remaining tranches of FY 2020-21
|Tranche||Subscription Date||Issuance date|
|2020-21 Series IX||28 Dec-1 Jan||05/Jan/21|
|2020-21 Series X||11-15 Jan||19/Jan/21|
|2020-21 Series XI||1-5 Feb||09/Feb/21|
|2020-21 Series XII||1-5 Mar||09/Mar/21|
4. Gold's outstanding performance in 2020:
On global uncertainty posed by the coronavirus pandemic, gold emerged as the safe-haven asset and in rupee terms has so far in the year 2020 has provided return of 28%. This is after double-digit gains in the previous year, marking its stellar rise for 2-straight years.
5. Outlook for gold for 2021:
And now as we head to the year 2021, momentum in gold is likely to be maintained. This is because:
• Global central banks are adhering to low interest rate regime and pushing liquidity to help revive economies battered due to the pandemic.
• Dollar weakness- Latest round of US stimulus to fight the pandemic will infuse dollar liquidity and end up weakening the greenback.
• Stimulus measures taken across the globe also provide a boost to gold price.
• Also, on the Covid front, efficacy of the vaccine as well as its proper administration in development countries will also guide gold's direction going ahead.
6. Experts take on gold going ahead:
Snehal Choksey, director, Shobha Shringar Jewellers, is of the view that the bull run that has started will touch $2,400 per tory oz. in the long term
"The weakening dollar is also helping gold rally. The gradual pace of economic recovery also means that an elevated gold environment is to stay for a few years at the least," believes Vaibhav Saraf, director, Aisshpra Gems.
So, if your investments are short of gold, you can definitely go for this route of investment in gold as the outlook for gold is expected to remain robust for at least few years. Also, as experts suggest investing in the precious yellow metal in tranches, why not invest right away but do make sure to remain invested for the entire tenure to reap maximum gains.