July Sovereign Gold Bonds to cost Rs 175 more, should you invest?

Source :Sify
Author :Finance Desk
Last Updated: Sat, Jul 4th, 2020, 16:02:47hrs
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Mumbai: The Reserve Bank of India on Friday announced the buying window for Series IV of 2020-21 Sovereign Gold Bond Scheme. The latest Sovereign bonds can be purchased by investors from July 6 to July 10. The new bonds are Rs 175 costlier than the previous bond announced in June.  

"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 working days of the week preceding the subscription period, i.e. July 01 – July 03, 2020 works out to Rs 4,852" said an RBI notification.

Investors opting for digital payments stand to receive a Rs 50 concession and accordingly the bonds can be purchased at Rs 4,802. The price of the bonds along with the discount is a tad lower than the peak seen in bullion markets few days ago.  

What are Sovereign Gold bonds:

The policy was launched with an objective of reducing India's huge import of the yellow metal. Lockdown and Coronavirus hit imports are yet to make a recovery. Investors buying this paper-Gold can thereby help reduce the tall import-bill.  

Bonds are denominated in multiples of units of 1 gram. The total tenor of a bond is 8 years with exit option after 5 years to be exercised on the interest payment dates. The interest payable on completion of tenor is 2.50 percent. Minimum investment is 1 gm (value of bond) or 1 bond. Individual investors can buy 4 kilos or 4,000 bonds while HUFs (trusts and other similar entities) can invest 20 kilos or 20,000 bonds every fiscal.  

The bond will provide SLR cover to bank subscribers. It will be sold through banks, post offices, exchanges and through agents. Other benefits of SGB for an average investor are as follows:  

1. Lower storage risks and nil charges on wastage, making, or purity testing.  

2. Held in paper format and easier to track.  

3. No STT or Capital Gains Tax on completion of tenor (according to GoI rules). Long-term capital gains tax is applicable after holding for three years. Also, bonds can be traded in secondary markets, redeemed on completion of tenor or used as collateral for loans. For more on tax benefits visit this link.  

Where to buy:

Authorized agencies that can provide subscription of such bonds are Scheduled Commercial Bank (excluding RRBs, Small Finance Banks and Payment Banks), designated Post Offices (as may be notified), Stock Holding Corporation of India Ltd (SHCIL) and recognized stock exchanges such as National Stock Exchange of India Limited and Bombay Stock Exchange Ltd. You can also try for more invest information with your brokerage firm.  

Subscribing from secondary markets:

Sovereign Gold bonds can be traded in secondary markets and hence BSE and NSE have emerged as popular avenues for those wanting to save some money on their investment. The two immediate benefits are possibility of getting a good deal (lower than even current SGBs) and reduced tenor.  

On the NSE, SGB bonds have been listed in a price range of Rs 4750 - Rs 4863. Your brokerage should be the best avenue to help you invest. Do consider the brokerage fees to get an exact estimate on the investment. Keep an eye on such schemes since these are open throughout business hours of the exchange and may not be available on a specific window.  

SGBs: To Buy or Skip?

In recent times, the SGBs have become more or less synonymous with ETFs or bullion. And, there are more ups than flip-sides to investing in Gold in these days of the pandemic and lockdown restrictions. Here are a few factors from the recent market movement to make your decision to invest.

Up-Side:  

1. Gold Outlook: Investors in recent times have reposed confidence in Gold and debt markets. International benchmark and spot rates are still trading upwards of $1,760 per troy ounce.  

2. Rising Covid Cases & Deaths: The Covid pandemic has nudged investors towards safer investment bets such as Gold. The wait-time for a vaccine is still in months and hence the momentum for Gold is reportedly longer.  

3. Domestic Markets: Gold has traded to an unbelievable high in recent times. In the last six months, Gold rates have peaked by 23.56 percent from Rs 38,950 on 1st Jan 2020 to Rs 48,127 on Friday. Brokerage reports indicate levels of Rs 50,000 as easily possible for Gold. Gold rates plus GST have already crossed the 50,000 psychological mark.  

Down-Side:

1. US economy Recovering: A recovering US economy with better jobs and the US President talking of growth in US equity markets sounds exciting for equity markets. Gold has usually rallied around indications of geopolitical risks and uncertain economic times.  

2. Stronger Rupee: A stronger Rupee negates gains for the yellow metal in domestic markets. In the last five trading sessions, the Rupee has returned to levels of 74.51. Any volatility should be a sign of Gold's next momentum. In international markets, a slipping greenback is usually fodder for Gold to pick up.  

Opinions on Gold investment:

"Gold has been on a dream run given the prevailing risk aversion sentiments. World ETfs holding have been steadily on the rise and looks like the momentum may continue. Gold prices may take smaller breathers, but so long as uncertainty on COVID-19 prevails, prices may continue the northward journey," says Lakshmi Iyer, Chief Investment Officer at Kotak Mahindra Asset Management Company.  

Chirag Mehta of Quantum Mutual Fund writing in a note summarized the Gold sugar-rush as "a high degree of uncertainty surrounds our outlook in the short term with developments like a vaccine and a second wave of infections influencing gold. But lingering macroeconomic uncertainties and systemic vulnerabilities as laid out above are going to ensure that gold will remain a preferred monetary asset for years to come."

Disclaimer: The article is only for information purposes and should be not be a replacement for professional and personalized advice of a registered financial advisor. More FAQs can be viewed on the RBI's page for SGBs.

Also Read: How Gold Loans can help tide over financial emergencies