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Should You Invest In Upcoming Sovereign Gold Bond Series?

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As we write gold on the MCX has hit Rs.. 47039 per 10 gm levels for the first time and during the current uncertain time, portfolio managers across the board have been advising to up the allocation to as much as 30% to cover up for the losses in other assets such as equity as well make up room for some capital appreciation.

 
Should You Invest In Upcoming Sovereign Gold Bond Series?

While, over the years, apart from physical gold, government has encouraged investment in gold through other instruments such as gold ETFs, gold fund etc. One of the other better alternatives to physical gold is sovereign gold bonds or SGBs.

 

And as the underlying gold metal seems to be in good spirit with all the global turmoil, here are the aspects you need to consider while investing in SGBs.

Gold prices Rising As Global Recessionary Concerns Loom:

The yellow metal has been soaring for more than a year now which for past few years remained steady. A couple of factors like in the recent past the US-China trade war and now the pandemic has made the metal breach levels of $1800 per ounce and in the rupee terms it is seen to hit price between Rs. 50000 to Rs. 55,000 by the end of 2020.

So, given the various advantages that come with holding gold in SGB form such as no storage cost as well as relaxation on capital gains, you can at this juncture consider betting on the investment option.

Current Market Dynamics Require Portfolio Rebalancing

Though the stock markets have shown resilience in line with global markets that see the epidemic to be peaking, no one can be sure as to whether the markets have bottomed out. So, instead of trying to time the markets, one should exercise high caution at this hour and instead bet on safe instruments, one such being gold for sure in the current hour.

Returns from SGB will be as per the Market Rate At Maturity

In last one year gold has reaped a whopping 27% return and as gold SGBs track the underlying 1gm gold price, investors after its maturity of 8 years is reached will be eligible for a return depending on the market value of the commodity at that time.

No Credit Risk With Backing From the Centre:

Also as being a safe instrument if you are considering investment in gold around Akshaya Tritiya, you can bet on the first tranche whose subscription starts from April 20 and you will be issued the bond on April 28, just two days following Akshaya Tritiya which falls on April 26 this year and is considered highly auspicious to purchase gold.

Also, these come with no expense charges.

Another factor that renders them attractive is return of 2.5% p.a. that is paid semi-annually. Also the instrument offers high liquidity being traded on the exchanges and slowly and gradually, the differential between the current market price and the traded price is going down.

Conclusion:

But here while the current market suggest investment in gold as macro-economic factors begin to stabilize there could be strength in other asset class, so very high allocation in gold should be refrained from as gold performance is inversely related to equity, bond etc.

GoodReturns.in

Read more about: gold sgbs
Story first published: Thursday, April 16, 2020, 15:09 [IST]
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