Sovereign gold bond issue opens; should you subscribe?

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Sovereign gold bond issue opens; should you subscribe?


NEW DELHI: The tenth series of the sovereign gold bond (SGB) scheme 2020-21 opened for subscription on Monday. The issue comes at a time when gold prices have seen a sudden drop and are trading below Rs 49,000 per 10 grams.

Prospective bidders, who intend to subscribe to the scheme, can bid for a minimum of one gm of gold at Rs 5,104 per unit. There will be a Rs 50 discount for prospective investors that will bid online. The issue closes on Friday, January 15. The Certificate of Bond(s) will be issued on January 19.

“Investment in the Sovereign Gold Bond Is always a better idea than investing in physical gold. Recent fall in the gold prices is an opportunity for long term investment. The fall couldn’t impact long term bullish momentum of the gold. I strongly recommend to invest in the sovereign gold bonds to the investors having a long-term investment horizon in the gold,” said Manoj Kumar Jain, Director – Head of commodity research, Prithvi Finmart.

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 at the time of redemption is higher, said ICICI Bank.

“People should invest some portion of their capital towards sovereign gold bonds because it will provide good inflation adjusted returns along with the interest. But at the same time, investors should not panic and remove their investment from gold. Gold is a great real asset to hold in an investor’s portfolio as it will not only provide portfolio diversification but also hedge against inflation. This correction in gold will in fact be a good buy on dips kind of opportunity for investors to get in for the long haul,” said Nirali Shah, Senior Research Analyst, Samco Securities.

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 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.

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, said HDFC Securities.





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