Before you invest, check the prices of previous tranche of the bonds which are available in the secondary market as they could be trading at a lower price and for a lesser duration too.
Investing in gold through Sovereign Gold Bond (SGB) gives one an option to invest in paper gold and thus save on cost and the hassle of storing it to keep it safe. In addition to gold ETF, these bonds provide an alternative to accumulate gold to meet one’s long term financial goals.
The Sovereign Gold Bond Scheme 2018-19 – Series V will be opened for subscription for the period from January 14, 2019 to January 18, 2019. The nominal value of the bond is fixed at Rs 3,214 per gram.
However, there is a discount of Rs 50 per gram to those investors who are applying online and the payment against the application is made through digital mode. For such investors, the issue price of Gold Bond will be Rs 3,164. Unlike your investment in gold ETF, on the principal amount invested in Sovereign Gold Bond, the investors get a fixed interest rate of 2.50 percent per annum payable semi-annually.
Where to buy
Only residents individuals are allowed to invest in them. The Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
How much gold can one buy
The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The minimum permissible investment will be 1 gram of gold. The maximum limit of subscribed shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal year. A self-declaration to this effect will be obtained. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the Secondary Market. In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.
How is price determined
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 business days of the week preceding the subscription period, i.e. January 09-January 11, 2019 works out to Rs 3,214. The redemption price will be in Indian Rupees based on previous 3 working days simple average of closing price of gold of 999 purity published by IBJA.
While the interest earned on Gold Bonds is fully taxable as per one’s income slab, the capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.
Should you invest
The tenor of the Bond will be for a period of 8 years with exit option in 5th, 6th year and 7th year to be exercised on the interest payment dates. Therefore, before investing make sure your goal for which you are investing in SGB is at least 5 years away. Further, although the bonds are traded in the secondary market, the liquidity may be low there and redemption may be difficult at the time of need.
Most financial planners suggest to not invest more than 10 percent of your total portfolio in gold. Lastly, before you invest in this Series and if you wish to hold them till maturity, check the prices of previous tranche of SGB which are available in the secondary market as they could be trading at a lower price and for a lesser duration too.Written by FE Online