One may also buy gold bonds from stock exchanges, which have been issued earlier and may be available at a lower price and shorter duration.
The Sovereign Gold Bond Scheme (SGB) 2020-21-Series VI will open for subscription from August 31, 2020, to September 04, 2020. The price of Series VI has been fixed at Rs 5,117 per gram of gold. However, for those applying online and making payment through digital mode, there is a discount of Rs 50 per gram, hence the price for them is set at Rs 5,067.
The price of Series V was fixed at Rs 5,334 per gram of gold, while for online purchase, the price after the discount was set at Rs 5,284. The Sovereign Gold Bond Scheme 2020-21-Series I price was fixed at Rs 4,639 in April while the Sovereign Gold Bond Scheme 2020-21-Series II issued in May was priced at Rs 4590.
The gold price in India has already crossed Rs 50000 per 10 gram but has stagnated since then. And for those who are wondering whether the gold price will move higher or not, here is what one can bank upon. “The U.S. Fed signalling a relaxed stance on inflation, an extended period of low rates acts as a support to Gold prices. Going forward the US government’s action on the next economic stimulus package, the trajectory of the US Dollar and the way governments worldwide control the virus will guide gold prices,” says Nish Bhatt, Founder & CEO, Millwood Kane International, an investment consulting firm.
The government fixes the price of issuance of SGB based on the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period. Such prices of gold are published by the India Bullion and Jewellers Association (IBJA).
The SG bonds mature after 8 years, however, there is a premature exit allowed after 5 years. The redemption price will be in Indian Rupees based on previous 3 working days simple average of the closing price of gold of 999 purity published by IBJA.
One may also buy gold bonds, which have been issued earlier, from stock exchanges. They may be available at a lower price and shorter duration. “Investing in Gold has been a fruitful investment this year as rates have risen over 30% despite the fall in gold prices in the last few weeks. SGB is an effective way to invest in non-physical gold, wherein an investor does not have to worry about the storage of gold as it is in a Demat form and there are no local taxes that a buyer needs to pay if buying physical gold,” says Bhatt.
5 key features of gold bonds
1. One can invest through Scheduled Commercial Banks (excluding Small Finance Banks and Payment Banks), designated Post Offices, Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges like, National Stock Exchange of India and Bombay Stock Exchange which are authorized to receive applications for the Bonds.
2. Buying and selling of SGB units are also allowed anytime during the year on stock exchanges. This provides liquidity as one redeem them before maturity.
3. The minimum investment in SGB is one gram while the maximum is 4 kg of gold in one financial year. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the Secondary Market.
4. On your investment in SGB, the government also pays an annual interest rate of 2.5 per cent, which is payable half-yearly. The interest earned is taxable, however, capital gains, if any on maturity redemption will be tax-free ( tax-exempt) in the hands of the investor.
5. The bonds may be used as collateral security for any loan. The Loan to Value ratio as applicable to any ordinary gold loan mandated by the Reserve Bank of India also applies to the sovereign gold bonds.
What to do
The global economic conditions and the falling interest rate scenario generally make the price of the gold move higher and has already crossed the Rs 50,000 per 10-gram mark. However, the movement of dollar against other currencies and its relative strength is also to be factored in while making the buying decision. Long term investors may look to invest about 10 per cent of their portfolio in gold preferably through gold ETF and SGBs with the aim to save for the long term.