Why Investors Should Put Money In The Sovereign Gold Bond Scheme?

The Sovereign Gold Bond Scheme 2021-22 - Series V is open for subscription from today (9th August) to 13th August 2021. The RBI press release stated, "The nominal value of the bond based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period." That will work out to Rs. 4790 per 1 gram gold.

The union government has also decided to offer a discount of Rs. 50/- per gram lesser than the nominal value to those investors who will apply online and the payment against the application is made through digital mode. For such investors, the issue price of a gold bond will be Rs. 4740 per 1 gram gold.

Why people should invest in SGB?

The gold prices are quite low in India now since last year. This present time is actually witnessing the highest drop in gold prices in one year period over more than one decade. It saw a 13% drop in one year period. Data published by the Value Research for Nippon India ETF GoldBeES informs - "the worst calendar year return for the precious metal since 2009 was in 2013 when it dropped by 14.08%". Hence, people are thinking more to invest in gold.

However, in the case of investing in physical gold, the investor will not receive any interest rate. Additionally, in the case of physical gold, there are making charges, GST and if invested on a large scale there will be storage costs. SGB is a lucrative option in this regard because there will be no such challenge as it comes in the form of a certificate.

By investing in SGB, the investor will get a fixed interest rate of 2.5% which will be payable on a half-yearly basis. The last interest will be payable on its maturity along with the principal amount. This is not an option for physical gold; only SGBs offer that. In addition to that, no 'capital gain tax' will be charged on the redemption of the bond. The SGB can also be considered as collateral for loans.

With SGB, comes the facility of easy liquidity for the investor. These bonds too can be traded on exchanges or the secondary market. SGBs are generally issues for 8 eight years terms. But this term can be bypassed. If somebody invests in the SGBs now but later thinks to sell the bond, it can be done on an exchange. There will be available buyers in the secondary market to buy the old bonds. Also, it is sometimes profitable to buy SGB from the secondary market because in some cases the SGB can be obtained at a lesser price.

The government is encouraging more people to invest in gold in the form of SGB. Through this bond, the government and the RBI will also be able to defuse money from the economy and keep it to the RBI. It might help to control the growing inflation rates to some extend.

Sovereign Gold Bond (SGB) has been announced in six tranches from May 2021 to September 2021 that is issued by the RBI on behalf of the union government.

Through both commercial banks and state banks, one can invest in SGBs. These bonds are granted in the form of stock certificates. The bonds are available for conversion to Demat form.