Gold prices fall below Sovereign Gold Bond issue price: Should you buy it from the secondary market?

By: |
March 5, 2021 5:17 PM

As the prices of gold have fallen below its issue price, Sovereign Gold Bonds would be available at a cheaper rate in the secondary markets.

gold, Sovereign Gold Bond, SGB, investing directly in SGB, buying SGB in secondary market, annual interest, capital gainInvestors buying the SGB online will get a discount of Rs 50 per gram.

Continuing their falling spree, gold prices have declined below Rs 46,000 per 10 gram level or Rs 4,600 per gram level on the closing day of the current issue of Sovereign Gold Bond (SGB), having an issue price of Rs 4,662 per gram or equivalent to Rs 46,620 per 10 gram.

Investors buying the SGB online will get a discount of Rs 50 per gram and have to pay Rs 4,612 per gram or Rs 46,120 for 10 gram.

As the prices of gold have fallen below its issue price, SGBs would be available at a cheaper rate in the secondary markets.

So, with the gold prices falling below the current issue price of SGB, will it be better to purchase SGB from the secondary market?

“SGB provides an interest of 2.5 per cent per annum and on maturity, it is exempt from capital gain taxes. Systematic investment in SGB irrespective of prices, year on year is a better proposition compared to buying from the secondary market. If acquired from the secondary market is similar to investing in debt mutual funds. On the other hand, the key drawback of buying SBG directly is its lock in duration being 8 years with exit option only post 5 years,” said S Ravi former chairman of BSE and Managing Partner of Ravi Rajan & Co.

“Even with the gold prices falling below the current issue price of SGB, it can be countered via buying in a staggered manner,” he added.

Which process is easier – investing directly in SGB when open for investment, or buying it from the secondary markets?

“SBG can be purchased from banks, stock holding Corporation, post office/agents via cash, cheques, demand draft, electronic fund transfer. Whereas, buying from the secondary market can be done through the brokers,” said Ravi.

Golden Portfolio: Know different ways of investing in gold and risks involved

“Both processes are easy and it’s a matter of customer preference,” he added.

Will an investor get the same benefits on SGB if purchased directly and in case buying it from the secondary markets?

“Investors will not get the same benefits from the secondary market as compared to direct purchase since they will not get the 2.5 per cent interest per annum and will not be exempt from capital gains. However, in the secondary markets it can be purchased on a discount on a falling gold price scenario,” said Ravi.

“Moreover, since there is not much volume of gold bonds traded in the secondary market, it is only useful for those purchasing in smaller quantities,” he added.

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