The Sovereign Gold Bond Scheme 2019-20 – Series X (Tranche 37) has opened on March 2, 2020, for subscription and will close on March 6, 2020. The issue price of the Bond during the subscription period will be Rs 4,260 per gram with the allotment date of March 11, 2020.
For those investors who will apply online and make the payment through the digital mode, there is a discount of Rs 50 per gram on the issue price. For such investors, the issue price of Gold Bond will be Rs 4,210 per gram of gold.
However, should one buy SGB in the primary market when the government issues them or buy bonds from the secondary market, i.e. bonds which are already listed on stock exchanges? Some of the SGBs listed on stock exchanges are available at a price of Rs 3900 per gram/unit.
Two big advantages in buying SGB from secondary market are – One, owing to lack of demand, liquidity, the prices are lower than market price and secondly, the remaining tenure of the bond will be less.
The Sovereign Gold Bonds are issued by the government at different times all through the year. Such issues are called Tranches and the issue is open only for a few days. But, what if you want to invest in gold on any other day? You can still buy SGB even if there is no such ongoing fresh issue of SGB by the government. These SGB – each Tranche of SGB- are listed on stock exchanges and one can buy, sell the units during the trading hours from the secondary market.
As an investor, one would like to purchase SGB at a lower price and sell it a higher price or even hold it till maturity of SGB. Also, as an investor, one would like to ensure that the period of holding is also less.
In the fresh issue of SGB, the price of each SGB is the average price determined by the government and the retail investors are provided a discount of Rs 50 on the issue price. On the stock exchange, the price will depend on several factors including the demand, interest payment etc.
The SGB is issued for a period of 8 years and on maturity, the government buys back the gold bonds from the investors at the prevailing price. During the period of holding, an interest rate of 2.5 per cent ( taxable) is paid to investors. Importantly, for investors who hold the bonds till maturity, the capital gain exemption exists, i.e. no tax has to be paid on the gains made on holding SGBs. Such exemption is even for those who have bought bonds from the secondary market.
There are more than 30 different Tranche Series of SGBs listed on the NSE terminal itself. However, trading could be very less in many of them. On any specific day, the volume of trading could be restricted in terms of units and amount.
The table below shows 7 different SGBs where a higher number of units and volume (Rs) were transacted.
Now, you may look at the price of each SGB to see if any bond is available at less than market price.
On March 2nd, the gold price per 1 gram was Rs 4100, while some of the SGBs were trading at around Rs 3900.
The table below shows 6 different SGBs with the price (LTP) between Rs 3900 and below Rs 4100.
The holding period is another important factor to look at. If you can track an SGB at a lesser price and with a lesser holding period (than 8 years), it could be worth considering.
The table below shows 5 different SGBs with holding period till December 2025 i.e. about 5 years ( for at least 100 units traded)
The number of units traded, the volume transacted can change on a daily basis. There is no guarantee that the above SGB will continue to trade in a similar manner in future. The above pointers may help one decide better after tracking the movement of SGBs over a few days.
