Sovereign gold bond price lowest in 10 months; should you subscribe?

Sovereign gold bond price lowest in 10 months; should you subscribe?

NEW DELHI: The series-XII of the sovereign gold bond (SGB) scheme 2020-21 opened for subscription on Monday. The issue comes at a time when gold prices have dropped sharply and are trading near Rs 46,000.

Prospective bidders, who intend to subscribe to the scheme, can bid for a minimum of 1 gm of gold at Rs 4,662 per gram. There will be a Rs 50 discount for those bidding online. The issue price for the bond is the lowest in 10 months.

The issue closes on Friday, March 5, while the certificate of gold bond will be issued on the 9th.

“Investment in paper gold is the best and the most effective way of investing in yellow metal. Gold should have an allocation of 5-20 per cent of any portfolio depending on the risk appetite,” said Nish Bhatt, founder & CEO of Millwood Kane International, an investment consulting firm.

In case you wish to subscribe, you can do so via your bank. Besides, these bonds are also sold through Stock Holding Corporation of India Limited (SHCIL), designated post offices, National Stock Exchange of India and BSE, either directly or through agents.

Investors would get a 2.50 per cent interest on the amount of initial investment, which will take effect from the date of its issue and will be payable every six months. Besides, they can also see capital gains at the time of redemption, in case the price at the time of redemption is higher.

“Gold prices have been falling since the news of an effective vaccine was reported, as it has ignited hope that the rising number of cases will be arrested and the pandemic will end soon. Gold prices have fallen to hit an 8-month low on rising US Treasury yield, appreciating dollar, and global economic recovery. Moving forward, treasury yield, dollar movement, and the pace of economic recovery worldwide will guide gold prices,” said Bhatt.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bonds are issued by RBI on behalf of the government.

The tenor of the bond will be for a period of eight years with exit option in 5th, 6th and 7th year, to be exercised on interest payment dates. Besides, bonds will be tradable on stock exchanges within a fortnight of the issuance.

Among the benefits of subscribing to SGB is attractive interest with asset appreciation opportunity, redemption being linked to gold price, elimination of risk and cost of storage, exemption from capital gains tax if held till maturity and a hassle free holding as it eliminates the storage cost of physical gold.

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