With the current spot gold prices hovering over Rs 38,000 per 10 gram, an investor would straightway gain over Rs 3,000 by subscribing for 10 units of this bond.
The Reserve Bank of India (RBI) has made gold available again by issuing Sovereign Gold Bond 2019-20 Series III at a price of Rs 3,499 per gram (Rs 3,449 per gram if purchased online). Opened on August 5, 2019, the current issue of Sovereign Gold Bond (SBG) will close on August 14, 2019.
With the current spot gold prices hovering over Rs 38,000 per 10 gram, an investor would straightway gain over Rs 3,000 by subscribing for 10 units of SBG (which is equivalent to 10 gram of gold) and with the gold prices moving up sharply, the gap may widen further.
Apart from the discounted price created an additional opportunity, there are many inherent benefits of investing in SBG over buying physical gold or gold jewellary.
“The choices before anyone who wishes to invest in gold for the next 5-8 years, are many – physical gold, gold jewellery, Gold ETFs and RBI Sovereign Gold Bonds,” points out Sandip Raichura, CEO of Retail and Distribution, Prabhudas Lilladher Pvt Ltd.
While storage and conversion costs are associated with physical gold, factors like premium, making charges and purity are associated with gold jewellery and Gold ETFs bears no government guarantees or fixed returns and also has additional costs of management charges.
“What if you could earn “dividends” and have no issues of pricing, storage or transparency and no capital gains to pay? That’s where Sovereign Gold Bonds score over all the options. Gold bonds also pay interest at the rate of 2.50 per cent per annum on the amount of initial investment,” said Raichura, while pointing out advantages of investing in SBG.
Sovereign Gold Bonds have many more features, some of which has been highlighted by Raichura as:
- The sovereign gold bond scheme, which was launched in 2015, is basically government securities denominated in grams of gold. The bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram. A citizen can buy minimum 1 gram of gold and can subscribe for maximum 4kg for individual and HUFs, while the highest limit is set at 20 kg for trusts and entities.
- Sovereign gold bonds come with a maturity period of 8 years, with an exit option from the fifth year. Sovereign gold bonds are also traded on stock exchanges within a fortnight of issuance, offering an early exit option for investors though liquidity is poor here.
- The redemption price will be linked to the prevailing price of gold. The bond is issued by the RBI on behalf of the government.
- Capital gains tax arising from redemption of sovereign gold bonds has been exempted. Also, indexation benefit is provided to LTCG arising to any person on transfer of bonds.
- Sovereign gold bonds can also be used as collateral for loans.
- The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.