Here’s What Investors Need To Know About Sovereign Gold Bond That Is Open For Subscription
Only invest in the sovereign gold bond if you have the willingness to hold for five to eight years, say experts.
The latest tranche of the government’s sovereign gold bond, managed by the Reserve Bank of India, is open for subscription till Friday.
The Sovereign Gold Bond scheme, introduced in November 2015, allows individuals to invest in government securities that are denominated in grams of gold. Thus, individuals buy gold in non-physical form and receive interest of 2.5% per annum, which is paid semi-annually. The bonds are issued in tranches by the RBI, usually once every quarter. They mature in eight years but have a lock-in period of five years.
On maturity, bondholders receive the prevailing price of gold. What’s more, if the bonds are held to maturity, capital gains tax is waived.
The most recent tranche of the sovereign gold bond has been priced at Rs 5,611 per gram. Those who subscribe to the issue and make payments through digital mode receive a Rs 50 per gram discount on this price.
"One of the first things to bear in mind when investing in the sovereign gold bond is the holding period," said Amol Joshi, founder of PlanRupee Investment Services. "Only invest in the bond if you intend to hold it for five to eight years. You don’t want to have to go to the secondary market to liquidate your holding."
A sovereign gold bond is one of the best ways to hold gold, according to Prableen Bajpai, founder of FinFix Research & Analytics. This is primarily because of the tax advantage of holding to maturity, she said.
"Investors who have funds available and are working towards diversifying their investment portfolios should consider investing in non-physical gold," she said. "While the SGB is a great option, if investors are looking at a more regular investment option, they could also consider investing in gold mutual funds."
Over the past 10 years, gold has generated a compounded annual growth rate of over 7%.
"Don’t invest in the gold bond if you’re only looking at past returns," Joshi said. "You should ideally look at an allocation of 15-20% of your portfolio in a combination of gold and international equity. An investor can make a call on allocation to gold based on their risk profile, but investments in physical gold should be avoided."