The Sovereign Gold Bond Scheme (SGB) 2020-21-Series V is open for subscription for the period from August 03, 2020 to August 07, 2020. The price of Series V has been set at Rs 5,334 per gram of gold. However, for those who apply online and make payments via digital mode, there is a reduction of Rs 50 per gram, so their price is set at Rs 5,284.
The government had already announced that there would be 6 tranches during the fiscal year. The Sovereign Gold Bond Scheme 2020-21-Series I was priced at Rs 4,639 in April, while the Sovereign Gold Bond Scheme 2020-21-Series II issued in May was priced at Rs 4,590.
The government sets the issue price of the SGB based on the simple average closing price of 999 purity gold for the last three business days of the week preceding the subscription period. These gold prices are published by the India Bullion and Jewelers Association (IBJA). SG bonds mature after 8 years, but premature exit is allowed after 5 years. The redemption price will be in Indian Rupees based on the simple average of the previous 3 business days of the 999 purity gold closing price published by IBJA.
One can also buy gold bonds, which were issued earlier, on the stock exchanges. They may be available at a lower price and for a shorter duration.
5 key characteristics of gold bonds
- One can invest through regular commercial banks (excluding small financial banks and payment banks), designated post offices, Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges such as the National Stock Exchange of India and Bombay Stock Exchange which are authorized to receive requests for bonds.
- The buying and selling of SGB units is also permitted at any time of the year on the stock exchange. This provides liquidity because they are redeemed before maturity.
- The minimum investment in SGB is one gram while the maximum is 4 kg of gold in one fiscal year. The annual cap will include bonds subscribed in different tranches upon initial government issuance and those purchased on the secondary market.
- On your investment in SGB, the government also pays an annual interest rate of 2.5 percent, payable semi-annually. Interest earned is taxable, however, capital gains, if any at the maturity of the redemption, will be tax free (tax free) in the hands of the investor.
- Bonds can be used as collateral for any loan. The loan-to-value ratio applicable to any ordinary gold loan mandated by the Reserve Bank of India also applies to sovereign gold bonds.
What to do
Global economic conditions and the scenario of declining interest rates generally push up the price of gold and have already crossed the 50,000 rupee mark per 10 gram increments. Investors may seek to invest around 10 percent of their portfolio in gold, preferably through gold ETFs and SGBs with the aim of saving for the long term.
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