NEW DELHI: On Saturday, the Reserve Bank of India announced the issue price for Series IX of Sovereign Gold Bonds, fixing the price at Rs 5,000 per gm of gold. The issue will be open for subscription from Monday to January 1, with a Settlement date of January 5, 2021. For investors who buy digitally, the issue price of Gold Bond will be Rs 4,950 per gram of gold.
Before you wonder whether you should invest in this round or not, it is useful to first gain an understanding of what Sovereign Gold Bonds are. SGBs are issued by the government at regular intervals at the prevailing gold price. The value of the bond is based on the simple average closing price as published by the India Bullion and Jewellers Association Ltd for gold of 999 purity. This average is for the last three business days of the week preceding the subscription period.
The scheme was first launched in November 2015 with an objective to reduce the demand for physical gold and shift a part of domestic savings—used for purchase of gold—into financial savings. The minimum permissible investment is 1 gram of gold and the maximum limit of subscription shall be 4 kg for individuals and HUFs, and 20 kg for trusts and similar entities for one fiscal year. The bonds are sold through banks, the Stock Holding Corporation of India, designated post offices, and stock exchanges.
These gold bonds have a fixed tenure of eight years and a lock-in period of five years. Investors get an interest of 2.5 per cent annually, which will be paid semi-annually and it is taxable. But if you hold SGBs till maturity, there will be no capital gain tax on the investment. Experts claim that this is an excellent alternative to investing in physical Gold, if you are doing so for the long term. There is no risk of theft and when you sell, you get the current market price.
While buying, you also do not have to worry about making extra charges or purity-levels. Another advantage is that investors get interest on the investment compared to a fund management fee of 1.25 per cent for the gold savings fund or gold ETFs. For an average investor, analysts note that it is prudent to maintain at least 10-15 per cent of their portfolio invested in the yellow metal.