Sovereign Gold Bond Scheme (SGB) 2020-21-Series III opens at Rs 4677 per gram: Should you invest?

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Updated: Jun 08, 2020 2:57 PM

Some of the earlier tranches of SGB may be trading at a lower price than what is currently being offered by the latest tranche.

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SGB Latest Issue Price: The Sovereign Gold Bond Scheme (SGB) 2020-21-Series III is open for subscription for the period from June 08, 2020 to June 12, 2020. The minimum investment in SGB is one gram while the maximum is 4 kg of gold. And, the price has been set at Rs 4677 per gram of gold for the SGB 3rd series. 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 4627.

The government had already announced that there will be 6 tranches during the FY. 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 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).

Unlike other investment in paper-gold such as gold ETF, in SGB, the investors get 2.5 per cent interest on the investments made. Such interest is also applicable to investors who buy SGBs from secondary market. Further, this interest is taxable but the redemption proceeds on maturity is tax-free in the hands of the investor.

The gold price, has been lying low since the last few weeks. “Gold prices have risen over 15% since January 2020. Currently, gold prices are hovering around Rs 46,000/10 gm, cooled-off after hitting a peak in mid-May. The weakness in prices of gold is on account of optimism around global markets as many countries lift lockdown for business, as usual, the Indian government also unveiled ‘Unlock 1.0’ its version of the re-opening economy in a phased manner. The US jobs data released last week were better than expected, it led to market optimism and a dip in the prices of gold,” says Nish Bhatt, Founder & CEO, Millwood Kane International.

The global economic conditions and the falling interest rate scenario generally make the price of the gold move higher. Investors may look to invest about 10 per cent of their portfolio in gold preferably through gold ETF and SGBs.

And, going forward, will the gold price increase? “Gold emerged as a preferred asset class due to the pandemic and the uncertainty which followed, is expected to remain in focus as the US Fed meets this week, commentary by Fed Chief on economic recovery, coupled with an update on any further stimulus by US government will affect the outlook for gold in the short-term. In the longer run, global economic recovery, U.S-China trade tensions, and the trajectory of the US dollar will guide the prices of the precious metal,” feels Bhatt.

The holding period of SGB is 8 years, however, there is a premature exit allowed after 5 years. The SGBs are also listed on the stock exchange and one can also buy and sell them from there. Some of the earlier tranches of SGB may be trading at a lower price than what is currently being offered by the latest tranche. The investors can, therefore, make an informed buying decision by considering the price and the duration left for the bonds to mature.

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