Continuing their falling spree, gold rates have declined beneath Rs 46,000 per 10 gram level or Rs 4,600 per gram level on the closing day of the present problem of Sovereign Gold Bond (SGB), obtaining an problem price tag of Rs 4,662 per gram or equivalent to Rs 46,620 per 10 gram.
Investors obtaining the SGB on the net will get a discount of Rs 50 per gram and have to spend Rs 4,612 per gram or Rs 46,120 for 10 gram.
As the rates of gold have fallen beneath its problem price tag, SGBs would be offered at a less costly price in the secondary markets.
So, with the gold rates falling beneath the present problem price tag of SGB, will it be far better to acquire SGB from the secondary marketplace?
“SGB provides an interest of 2.5 per cent per annum and on maturity, it is exempt from capital gain taxes. Systematic investment in SGB irrespective of prices, year on year is a better proposition compared to buying from the secondary market. If acquired from the secondary market is similar to investing in debt mutual funds. On the other hand, the key drawback of buying SBG directly is its lock in duration being 8 years with exit option only post 5 years,” stated S Ravi former chairman of BSE and Managing Partner of Ravi Rajan & Co.
“Even with the gold prices falling below the current issue price of SGB, it can be countered via buying in a staggered manner,” he added.
Which approach is less complicated – investing straight in SGB when open for investment, or obtaining it from the secondary markets?
“SBG can be purchased from banks, stock holding Corporation, post office/agents via cash, cheques, demand draft, electronic fund transfer. Whereas, buying from the secondary market can be done through the brokers,” stated Ravi.
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“Both processes are easy and it’s a matter of customer preference,” he added.
Will an investor get the very same positive aspects on SGB if bought straight and in case obtaining it from the secondary markets?
“Investors will not get the same benefits from the secondary market as compared to direct purchase since they will not get the 2.5 per cent interest per annum and will not be exempt from capital gains. However, in the secondary markets it can be purchased on a discount on a falling gold price scenario,” stated Ravi.
“Moreover, since there is not much volume of gold bonds traded in the secondary market, it is only useful for those purchasing in smaller quantities,” he added.