The gold price per gram for SGB is fixed at Rs 4,639 while for those who invest through any of the digital modes, the price will be Rs 4,589, a discount of Rs 50.
SGB Gold Bond Price: The first tranche of the Sovereign Gold Bond Scheme 2020-21-Series I is open for subscription for the period from April 20, 2020, to April 24, 2020. The gold price per gram for SGB is fixed at Rs 4,639 while for those who invest through any of the digital modes, the price per gram of gold will be Rs 4,589, a discount of Rs 50.
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, i.e. April 15 – April 17, 2020. Such prices of gold are published by the India Bullion and Jewellers Association (IBJA).
The holding period of SGB is 8 years, however, there is a premature exit allowed after 5 years. On maturity or on premature redemption, the price will be determined by the government based on IBJA prices. Premature redemption of the bonds is permitted after five years from the date of issue of such bond, on the date on which the next interest is payable. The request for pre-mature redemption shall be submitted (in case of dematerialized securities) at least 10 days before the next interest payment date.
How to invest in SGB
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. One can apply for a minimum of 1 gram of gold up to a maximum of 4 kg of gold annually under different tranches during the year and even including those bought from the secondary market.
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.
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.
SGBs are issued as Government of India stock by RBI and are eligible to be held in either Bond Ledger Account (BLA) with Reserve Bank of India or with Depositories viz NSDL/CDSL in the demat account.
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.
To Sum Up
SGB represents paper-form of owing gold and having exposure to gold as an asset class in one’s portfolio. Alternatively, there is a gold exchange-traded fund (ETF), which too is an investment in paper form. SGB is cost-effective than gold ETF and even earn an additional 2.5 per cent interest. Even the tax structure is favourable in SGBs compared to gold ETF. However, some previous tranches of SGB may be available at a lesser price with a lesser maturity period too. Most financial planners suggest 5 to 10 per cent exposure on gold, however, considering the uncertain economic conditions amidst COVID-19, a higher allocation may even be considered.