Sovereign Gold Bond Issue Price Announced – Should You Invest?

By Priyanka Sambhav

The Sovereign Gold Bond Scheme 2020-21-Series VIII will be opened for subscription in the auspicious Dhanteras and Diwali week from 9-13 November 2020. The issue price of the  Sovereign Gold Bond(SGB) Series VIII is Rs 5177 for a gram of gold. Those investors who apply for SGB online and make payment through digital mode will get a discount Rs 50 per gram, and for them, the price of a single bond will be Rs 5,127.

The price of SGB is decided on the average published price by India Bullion and Jewellers Association Ltd (IBJA). For the current issue also this was followed. RBI said in a statement-  “The nominal value of the bond based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period, i.e. November 04 – 06, 2020 works out to be ₹5,177/- (Rupees five thousand one hundred seventy-seven only) per gram of gold.”

Reserve Bank India issues sovereign Gold Bond on behalf of the Government of India. One unit of Sovereign Gold Bond is equivalent to 1-gram Gold of 999-purity. These bonds were started in November 2015 to reduce the demand of physical gold and encourage people to invest in gold as a financial asset which would give you return as well as would work as collateral for loans.

The most significant advantage with SGBs over other gold investment options is that SGBs offer interest at the rate of 2.50 per cent per annum on the amount of initial investment. Interest gets credited semi-annually to the bank account of the investor. The interest payment is an extra profit to the investor in addition to the capital appreciation of the bonds that are expected in the long term. Bonds are eligible to be used as collateral for loans from banks, NBFCs and financial institutions

The price of the Sovereign Gold Bond Scheme 2020-21-Series so far has been as follows-

8 things that you should know about Sovereign Gold Bond-

1) The Bonds will be restricted for sale to resident individuals, HUFs, Trusts, Universities and Charitable Institutions.

2) Minimum investment in the bonds can be 1 gram with a maximum investment allowed up to 4 kilograms per person per fiscal year. The maximum limit of investment in SGB is 20 Kg for trusts and similar entities. An application can be made in a single or a joint name. Sovereign Gold Bonds can also be bought on behalf of the minor by his/her guardian. In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.

3) The tenor of the bond is 8 years, but early redemption is allowed after five years from the date of issue. Though there is a lock-in period of five years and cannot be redeemed before 5 years in the primary market yet, the bonds are tradable in the secondary market if held in Demat form.

4)The investors will be compensated at a fixed rate of 2.50 % per annum payable semi-annually on the nominal value.

5) Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.

6) Interest received from bonds is taxable, but TDS is not applicable. The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on the redemption of SGB is exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.

7) Bonds are sold by Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices (as may be notified) and recognized stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.

8) Know-your-customer (KYC) norms will be the same as that for the purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required. Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to individuals and other entities.

Sovereign Gold Bond are a good buy as compared to physical gold and at the same time, it gives a return equivalent to price surge of gold plus earns interest. As compared to Sensex which gave a return of 16.25% gold gave a return o 22% in the past one year. Liquid funds earned around 6.73% only. Wealth managers suggest that gold could help you in portfolio diversification and one should allocate 5-10% of their portfolio to gold.