Want to buy sovereign gold bonds? Subscription is now open

The series-XII of the sovereign gold bond (SGB) scheme 2020-21 opened for subscription on Monday.  The issue price has been fixed at Rs 4,662 per gm. The issue comes at a time when gold prices have been a sharp correction and trading near Rs 46,000/10 gm.

Nish Bhatt, founder & CEO, Millwood Kane International – an investment consulting firm on SGB tranche 12, said  “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% of any portfolio depending on the risk appetite. Gold prices have been falling since the news of an effective vaccine (against covid-19) was reported, as it has ignited hope that the rising number of (covid-19) 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.”

Sovereign gold bonds (SGBs) are government securities denominated in grammes of gold and are substitute for holding physical gold. Apart from the market prices you also earn an interest at a fixed rate of 2.5%, which is payable semi-annually. One can invest a maximum of 4 kg annually in these bonds. The minimum limit is 1 gramme of gold. Prices reduce by Rs 50 per gramme for those who subscribe online and pay through digital mode.

Gold prices had crashed on Friday amid a surge in 10-year US bond yields. The 10-year bond yield reached record highs of 1.60% last week and pushed precious metals prices lower.  On Monday, April gold contracts were trading higher by 0.6% at Rs 46,020 for 10 gm as the dollar retreated and investor focus remained on bond yields and the outlook for growth.

On the outlook on gold prices experts say gold prices may correct further. Anuj Gupta, Deputy vice-president, commodity and currency research at Angel Broking said, “As of today, traders can go for sell in gold at Rs 46,100 levels with the stop loss at Rs 46,400 levels for the target of Rs 45,600 levels.”

Features of SGBs

Interest Rate: The simple interest rate is fixed at 2.50 % per annum by the government. The interest is payable half-yearly. The market value of gold is paid on maturity along with the interest earned.

Issue Price : The issue price of SGB is based on an average closing price of gold of 999 purity for the last three working days of the week preceding the subscription period. These rates are published by the India Bullion and Jewellers Association Limited.

Tenure: The bonds come with the tenure of eight years. You can, however, exit in the 5th, 6th and 7th years on the interest payment dates.

Collateral: SGBs can also be used as collateral if you need a loan.

Taxation: There is no tax on the redemption of SGB after completion of the maturity period. If you, however, sell it midway before three years from the date of purchase, then the gains will be taxable as Short Term Capital Gains. The profits are added to your gross total income, which is taxed as per your income tax slab. For more than 3 years, long term capital gain is levied at 20% post  post indexation .