Sovereign Gold Bonds

With the end of “Unlock-1”  finally the Indian stock market has shown some good and spontaneous growth aspect, well to be honest the phase is not permanent but it’s basically too much liquidity in the market which is driving the economy to such heights. The liquidity which was injected into the economy by our government and various other monetary and fiscal policies is affecting the market.

While the economy all over the world is affected by the pandemic, still stock market has shown very good growth & positive rise, this rise is nothing but too much liquidity; don’t fall for this kind of movement in the market.(TIMES OF INDIA)

With RBI slashing down the “Repo rates” banking sector decreasing the fixed deposits rate & saving accounts rates, more and more spending behavior is been promoted by our government pushing the economy to rise.

Now for stabilizing the economy and keeping the liquidity maintained in our economy Government of India (GOI) needs to raise funds for further spending on the economy. To do this government has come up with “Series-3” (SOVEREIGN GOLD BOND SCHEME) also known as (SGB) 2020-2021.

                                   

This is the first time that in such a short series of time government has come up with 3^rd time with such bonds. The last date of issue of such gold bonds was just 1 month ago which was 19^th of May 2020.

FOLLOWING ARE ISSUE OF SGB IN YEAR 2020-2021:-

DATE	SERIES
28/04/2020	SGB series-1
19/05/2020	SGB series-2
08/06/2020	SGB series-3

 

Now the question which arises is whether investing in such government bonds is a good investing option?

To understand this we have to first understand the characteristics and features of “Sovereign Gold Bond”

The Sovereign Gold Bond offers a superior alternative from holding gold in physical form. The risk and cost of storage are also eliminated & Investors are also assured of market value of gold at the time of maturity and in addition periodical interest is also available. Sovereign Gold Bonds are free from issue like making charges and the purity in case of gold in jewelry form.

BENEFITS OF SOVEREIGN GOLD BONDS:-

·         Attractive Interest is available with asset appreciation opportunity.

·         The Redemption is linked to gold price on maturity.

·         Eliminates risk of carrying physical gold and cost of storage.

·         Exempt from “Capital Gain Tax” if held till maturity.

FEATURES OF SOVEREIGN GOLD BONDS:-  (RBI.ORG)

·         SGB, are issued by the government of India (GOI) and are therefore are secure investment with minimum risk. The bond is issued by RBI on behalf of the Government.

·         Investors shall get ongoing market price at the time of redemption “i.e. if the value of gold on the date of maturity rises then equivalent amount of gain shall be credited to you”. But at the same time if the market falls there can be chances of capital loss in monetary terms.

·         One of the other features of the issue is that it allows holding gold bonds in joint holding” that means on joint name the bonds can be bought” and the maximum limit of 4 kilograms shall be applicable to 1^st applicant only “that means the other applicant can still buy more”.

·         Even in name of minor child gold bonds can be applied and bought provided their guardian has applied on their behalf.

·         The gold bonds shall be issued in denominations of one gram of gold and in its multiples therefore, the minimum amount of investment in bond shall be one gram and the maximum limit of subscription shall be four kilograms.

INVESTORS	MAXIMUM	MINIMUM
INDIVIDUAL INVESTORS	4 KILOGRAMS	1 GRAM
HUFs	4 KILOGRAMS	1 GRAM
TRUST & SIMILAR ENTITIES	20 KILOGRAMS	1 GRAM

 

·         The tenure of the Gold bond shall be for a period of 8 years with exit option shall be available from 5^th, 6th and 7^th year to be exercised on the interest payment dates.

·         RBI shall issue press release regarding the price of gold bond before the issue of bond.

·         The payment for the bond will be through cash payment (up to a maximum of Rs. 20,000/-) or demand draft or cheque or electronic banking.

·         The best part of investing in gold bond is getting 2.5% interest per annum, which shall be payable semi-annually on the nominal value.

·         The other benefit shall be that bonds can be used as collateral for loans & further borrowings.

·         Every application shall be accompanied with PAN NUMBER “i.e. without PAN NUMBER applicant cannot proceed further “.

·         SGB, can be applied for online and on payment through electronic means shall give a discount Rs 50 per gram less than the nominal value.

·         Bonds can be transferred to any relative, member, and friends, anybody who fulfills the eligibility criteria.

·         Nomination facilities are also available, that means we can make nominee in our gold bonds provided the nomination form has to be filled.

·         Certificate of holding shall be made available if SGB, are bought through banks and specified post office.

·         The bonds can be easily traded on stock market provided if they are bought online and kept in demat account.

·         The issue price of the bonds shall be Rs.4, 677/- per gram.

·         The subscriptions shall be opened from 8^th June 2020 till 12^th June 2020.

·         The form for application can be taken from any bank or specified post office for physical holding and for demat holding you can buy them online through your stock broker, you can even by them through zerodha.

 

SUMMARY:-

CRETERIA	PARTICULARS
RISK LEVEL IN INVESTMENT	LOW
INTEREST AVAILABILITY	YES, @2.5%
TENURE	8 YEARS, BUT EXIT WINDOW AVAILABLE FROM 5TH YEAR ONWARD
EXIT LOAD	NO EXTRA CHARGES
LISTING	LISTED ON STOCK EXCHANGE
TRANSFERBILITY	YES, AVAILABLE
NOMINATION	YES, AVAILABLE
CERTIFICATE OF HOLDING	YES,AVAILABLE

 

In general the investment in these bonds does not give as much benefits as compared trading in other financial instruments agreed, but they are backed up the government, still the chance of capital loss are quite pointing out the negative side of these gold bonds.

But still if we pay attention the exit load does not have any extra charges, plus these bonds can be traded on the market “that means if you are not sure whether what market price will gold trade after 8years you can trade them on stock market or physically, way before maturity and the exit options shall be available from 5^th year onward that means if you are not sure regarding the investment you can monitor and exit from the bond way before 8^th year before the maturity.

To check the other aspects we shall consider the change in gold price over the years:-

                                                             (price per gram)

As such the volatility in gold is visible but just to assure you the market price of gold has shown growth over the years.

                                  

“So in my opinion if you check the data in last 10 years the price of gold has been rising and the investment in gold bond is not looking as such a bad investment if you ask me but at the same time a good market watch on performance of gold price is required so that even if something goes wrong you can either exit after the 5^th year or you always have the option to trade them off”.