India's Sovereign Gold Bond Scheme managed by the Reserve Bank of India is open to subscriptions from today.
The central bank in a press release said the window for subscriptions will be open from Monday for four days. The subscription closes on May 28 2021.
The price of Gold for the Series II 2021-22 Gold Bond has been determined at Rs 4,842 per unit. Each bond is equivalent to the price per gram of 24 karat or 999 gold.
Payments to subscriptions made online or in digital mode are offered a discount of Rs 50 per unit. Hence, the issue price works to Rs 4,792 per unit.
This price is determined on the basis of the average closing price for the last three business days preceding the subscription period and as determined by the India Bullion Jewellers Association.
Despite the concerns on a raging second pandemic and curfew like scenarios across several key states, Gold price have maintained a high. International Gold rates have soared to a five month high of $1,883 per troy ounce on the US Comex (as of updating this story).
US Comex Gold price crashed to a low of $1,684 per ounce on 31 March -- the lowest in nearly nine months. This, despite Gold striking an all-time high of $2,064 per ounce as of 6th August 2020.
The Sovereign Gold Price that opens today is a tad expensive (Rs 65). The preceding SGB subscriptions (that opened on 14th May) were sold at a price of Rs 4,777 (exclusive of the Rs 50 discount).
Although retail demand is yet to pick up in crucial markets such as India owing to lockdown like scenarios in several states, the recent Gold import numbers indicate soaring imports.
India imported $6.2 billion worth of Gold in April 2021. For April 2020, Gold imports had crashed to $2.83 million (owing to the national lockdown).
Perhaps decent uptick and the prospects of waning Covid cases and a rising equity markets are likely to lead investors towards Gold.
If the prospects of having a part of your investment in Gold interests you, the SGB is certainly a no-frills avenue. However, well-researched and cautious investors would also re-look at availability in secondary market transactions (majorly the NSE) where SGBs are available for a slightly lower price.
Also, the lower redemption price offered during the month of March may come as a concern. The early redemption price, should an investor want to sell the SGB, worked at a price of Rs 4,491 according to the RBI's press release dated Mar 25, 2021. Most experts argue that investment in an SGB work better for the long frame in mind.
Here are other benefits for keen investors:
1. Cost of storage is eliminated. SGB is held in demat format.
2. No melting charges, making charges, purity testing charges, BIS/hallmarking charges etc.
3. No STT or capital gains tax.
4. Bonds can be used as collateral for loans. The LTV (Loan to Value) previously stood at 90%, however this has come down and is subject to assessment and policies of the lenders.
5. Tenure of SGB: 8 years, interest eligibility is 2.50 percent. Premature exit is permitted at the end of fifth year.
Individual buyers can subscribe for 4 kilos of Gold or 4,000 SGB instruments in a fiscal. For HUFs (Hindu Undivided Family), the restriction is 4 kilos while trusts can subscribe up to 20 kilos.
If this interests you, you should talk to your bank, broking agency or the exchange to subscribe to the SGB. Scheduled Commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges such as the National Stock Exchange of India Limited or the Bombay Stock Exchange Limited are entities enabling subscriptions to the SGB.
Disclaimer: Readers are advised to consult a SEBI registered financial advisor prior to investment. This article is solely for information purposes. Lead image is attributed to Indranil Mukherjee for AFP -- a worker holds a stamping die containing a 50 gram standard gold bar at the National Indian Bullion Refinery (NIBR) in Mumbai.