Sovereign gold bond issue opens tomorrow; should you subscribe?

Prospective bidders, who intend to subscribe to the scheme, can bid for a minimum of 1 gm of gold at Rs 4,842 per gram against Rs 4,777 per gram for the previous tranche. There will be a Rs 50 discount for prospective investors that will bid online. The issue closes on Friday, May 28. The Certificate of Bond(s) will be issued on June 01.

“Based on their risk profile investors should look at allocating 5-15 per cent of their investment capital to gold. Sovereign Gold Bond is a better alternative to physical gold as there is no risk of theft, storage charge, and to top it up it comes with an interest-bearing coupon,” said Nish Bhatt, Founder & CEO, Millwood Kane International, which is an investment consulting firm.

In case you wish to subscribe, you can do so via your bank. Besides, these bonds are also sold through Stock Holding Corporation of India Limited (SHCIL), designated post offices, National Stock Exchange of India and BSE, either directly or through agents.

Investors would get a 2.50 per cent interest on the amount of initial investment, which will take effect from the date of its issue and will be payable every six months. Besides, they can also see capital gains at the time of redemption, in case the price of gold at the time of redemption is higher.

“Gold prices have been on an up move due to uncertainties created by the second wave of Covid-19 cases, concerns of rising inflation in the US, and a weaker US dollar. Gold prices have been trading near a 4-month high in the international market. The high volatility in cryptocurrencies has led to investors flocking back to gold for stability,” said Bhatt.

According to Indian Bullion and Jewellers Association, the highest purity gold traded at Rs 48,553 per 10 gram on Friday evening.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bonds are issued by the RBI on behalf of the government.

The tenor of the bond will be for a period of eight years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates. Besides, bonds will be tradable on stock exchanges within a fortnight of the issuance. Though the liquidity is usually low on exchanges.

Among the benefits of subscribing to SGB is attractive interest with asset appreciation opportunity, redemption being linked to gold price, elimination of risk and cost of storage, exemption from capital gains tax if held till maturity and a hassle free holding as it eliminates the storage cost of physical gold.