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Sovereign gold bond third tranche issue opens today: Should you subscribe?

Sovereign gold bond third tranche issue opens today: Should you subscribe?

31 May 2021

NEW DELHI: The third tranche of the sovereign gold bond (SGB) scheme 2021-22 opened for subscription on Monday. This issue comes soon after the first and second tranche, but is priced slightly higher than both.

Prospective bidders, who intend to subscribe to the scheme, can bid for a minimum of 1 gm of gold at Rs 4,889 per gram against Rs 4,842 per gram for the previous tranche. There will be a Rs 50 discount for prospective investors that will bid online. The issue closes on Friday, June 4. The Certificate of Bond(s) will be issued on June 08.

Investment in Sovereign Gold Bonds is picking up pace. As per data, the Tranche-1 of SGB saw investment in excess of Rs 2,500 crore. The high interest was also due to lower prices of gold, which reflected in the subscription price for the SGB, said analysts.

“The advice and aim of the government that investment should move from physical to paper gold is picking up pace. The subscription figures for FY21 were impressive and FY22 is likely to mirror it. Investment in SGB is a superior alternative to physical gold. Investment in SGB saves the cost of buying, storing, and selling the physical gold bar or coins,” said Nish Bhatt, Founder & CEO, 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 of gold at the time of redemption is higher.

“Gold prices show promise of upside from current levels in the near future, but heavy flows in equities may affect the rally for the yellow metal. As we move forward, the economic data, monetary policy, and stance by the RBI and the US Fed, any further stimulus package from India, the US, and other advanced nations will guide the gold prices along with the concerns related to the virus,” said Bhatt.

According to Indian Bullion and Jewellers Association, the highest purity gold traded at Rs 48,587 per 10 gram on Friday evening. The price data released by the Association forms the basis for prices of SGBs.

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 the RBI on behalf of the government.

A total of Rs 25,702 crore has been raised through the SGB Scheme since its inception till end-March 2021. The RBI had issued 12 tranches of SGB for an aggregate amount of Rs 16,049 crore (32.35 tonnes) during 2020-21.

The tenor of the bond will be for a period of eight years with exit option in fifth, sixth and seventh year, to be exercised on the interest payment dates. Besides, bonds will be tradable on stock exchanges within a fortnight of the issuance. The liquidity is usually low on exchanges.

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.