Planning investments in sovereign gold bonds? Here are opportunities for investors
Sovereign gold bonds are one of the ways of digital investment in gold. These bonds are issued by the Reserve Bank of India on behalf of the Government of India. These bonds are denominated in multiples of grams of gold with a basic unit of 1 gram
SGBs are a form of digital investment in gold. These bonds are issued by the Reserve Bank of India on behalf of the Government of India. They are denominated in multiples of grams of gold, with a basic unit of 1 gram.
The bonds have a tenure of 8 years, with an exit option available
in the 5th, 6th, and 7th years, which can be exercised on the interest payment
dates. The minimum permissible investment is 1 gram of gold, while the maximum
permissible limit is 4 kg for individuals, 4 kg for Hindu Undivided Families
(HUF), and 20 kg for trusts and similar entities per fiscal year (April-March),
as notified by the government from time to time.
The redemption price will be in Indian Rupees, based on the simple average of
the closing price of 999 purity gold over the previous 3 working days, as
published by IBJA. Investors will receive a fixed interest rate of 2.50 percent
per annum, payable semi-annually on the nominal value. The bonds will be
tradable on stock exchanges within a fortnight of issuance, on a date as
notified by the RBI.
Why are SGBs a better bet in comparison to physical gold?
Investing in gold has become much easier and more convenient now. Sovereign Gold Bonds (SGBs) offer a perfect alternative to investing in physical gold. With these bonds, you can benefit from capital appreciation while also earning annual interest. Issued by the Government of India, SGBs also eliminate several risks associated with holding physical gold.
Unlike physical gold, which does not provide any interest, Sovereign Gold Bonds (SGBs) offer a 2.5% annual interest to investors. The final interest payment will be credited along with the principal amount at maturity.
Additionally, these bonds carry a sovereign guarantee on both the redemption amount and the interest.
The price of the bond will be fixed in Indian Rupees based on the simple
average of the closing price of 999 purity gold published  by the India Bullion
and Jewellers Association Limited (IBJA) for the last 3 business days of the
week preceding the subscription period. The issue price of the Sovereign Gold
Bonds (SGBs) will be Rs 50 per gram less for those who subscribe online and pay
through digital modes. Additionally, SGBs are not taxable if held until
maturity.
Opportunities for investors
The price of gold has increased in recent years, as seen in the gold prices in both international and domestic markets, as shown in the chart above. Sovereign Gold Bonds are ideal for investors who wish to avoid the
burden of holding physical gold and the associated storage issues.
Moreover, Sovereign Gold Bonds are suitable for long-term investment
perspectives. Therefore, we advise investors to take advantage of these digital
gold investment opportunities. Ideally, one should allocate 10-15% of their
portfolio to gold to systematically balance overall returns. Since gold has
historically provided strong returns over the long term, investors should
consider diversifying their portfolios with gold as an alternative value
proposition.
Source: https://economictimes.indiatimes.com/