For the fiscal year 2022–2023, the second release of the sovereign gold bond (SGB) went on sale on August 22 and will remain active until August 26. The Sovereign Gold Bond Scheme 2022-23 – Series II issue price has been set by the Reserve Bank of India (RBI) on Friday at ₹5,197 per gramme. This Sovereign Gold Bond Scheme 2022-23 – Series II is available for purchase at banks, Stock Holding Corporation of India Limited (SHCIL), authorized post offices, and registered stock exchanges — NSE and BSE. In collaboration with the Reserve Bank of India, the Indian government has agreed to grant investors who apply online and pay for their applications using digital methods a discount of ₹50/- per gramme compared to the nominal value. The issuance price of a gold bond for these investors would be ₹5,147 per gramme of gold, according to RBI.
Six reasons to invest in SGB were recently listed in a Tweet by SBI. According to SBI, the perks of investing in SGBs include guaranteed returns of 2.50% annually payable half-yearly, no storage hassles like physical gold, no capital gain tax on redemption, traded on exchanges, can be used as collateral for loans, and no GST and making charges unlike in physical gold. The advantages of investing in SGB over other kinds of gold have also been outlined by the brokerage company Zerodha. According to Zerodha, investing in SGBs enables you to witness benefits like you get a fixed 2.5% interest every year, guaranteed by the Government of India and no expenses or other charges. Gold ETFs & funds charge up to 1%. However, commenting on the risk associated with SGBs, RBI has said on its website that “There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.”
Investment in sovereign gold bonds (SGB) provides decent benefits in the form of interest income in addition to being risk-free. Gold is seen as a bulwark against inflation. Analysts believe that growing global inflation and appetite for gold during the upcoming festival may lead to driving up prices. SGBs are a safe alternative investment to real gold since investors will get returns linked to gold prices and gold bond prices are linked to the price of 999 purity (24 carat) gold as announced by IBJA. The Sovereign Gold Bond Scheme was introduced in 2015 with the intention of replacing owning physical gold. Investors purchased the SGBs for an amount of ₹29,040 crore during the fiscal years of FY22 and FY21, accounting for nearly 75% of the bonds’ overall sales since their introduction in 2015, according to the data of RBI. Since the scheme’s launch in November 2015, a total of ₹38,693 crore (90 tonnes of gold) has been granted through SGBs, as per the data available on the website of RBI.
By commenting on the investment opportunity in SGBs Nitin Rao, Head Products and Proposition, Epsilon Money Mart said “Gold acts as a good diversification option in investors’ portfolio. It’s always advisable to invest 5-10% allocation to gold from the overall portfolio. Gold also provides a hedge against inflation. SGB is a good option for investors to consider as it is very transparent and cost-effective compared to physical gold. There is no hassle of storing the same as it’s directly credited to customers’ Demat accounts. Customers can invest anywhere from 1 gm to 4 kg of gold through this route. Given the dark clouds of political risk hovering above, gold offers a safe investment option to investors when these bonds are guaranteed by the government. The interest from these bonds is taxable as per the individual slabs.”
Mr. Vijay Bhambwani, Head of Research- Behavioral Technical analysis at Equitymaster said “Gold prices have boon volatile of late due to the strength in the US dollar index (DXY). Since the US$ is the invoicing currency in global commodity markets, any strength in the $ results in lower commodity prices. Markets and market participants know this fact so the event is unlikely to make a material difference to the sovereign gold bond SGB rollout. It should be noted that investors in the SGB are long-term investors rather than short-term traders.”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.