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The government in consultation with the Reserve Bank of India will issue its tenth series of Sovereign Gold Bonds — 2019-20.
The issue price of the Sovereign Gold Bond for this Series has been fixed at ₹4,210 a gram of gold for those who subscribe online and pay through digital mode and ₹4,260 a gram for others.
Applications for the bonds will be accepted till March 6. The Certificate of Bond will be issued on March 11.
The sovereign gold bond issue price has increased 34 per cent from ₹3,146-3,196 per one gram fixed for first series to ₹4,210 a gram in the latest series.
This is in line with sharp increase in gold price in the physical market.
The nominal value of the bond has been fixed on the basis of simple average of closing price for gold of 999 purity of the last three business days of the week preceding the subscription period — February 26-28.
SGBs are treated more as an asset diversification strategy rather than to earn superior returns.
Although investments in some of the past tranches are currently traded in the negative based on the current price (mainly due to discount in prices vis-a-vis current gold price), one needs to appreciate that gold prices are prone to fluctuations based on macro events globally and USD-INR rates and doing an SIP in every tranche of gold can be considered by investors who are either under-invested in gold or have regular fresh monies for allocation among various asset classes or need to accumulate gold for wedding or other auspicious occasions, said an HDFC Research report.
Regular returns, collateral
SGBs deliver regular interest of (2.5 per cent a year) on invested capital every six months and capital gains at the time of redemption in case the price at the time of redemption is higher.
SGBs can also be used as collateral for loans. This bond is as liquid as physical gold and could be exchanged for money, albeit on loan basis, at the time of financial need. The bonds will be available both in demat and paper form.
While the minimum application criteria is one gram of gold, the maximum an individual can buy is 4 kg and trusts can invest up to 20 kg per fiscal year.
The tenor of the bond will be for 8 years with exit option after the fifth year from the date of issue and such repayments shall be made on the next interest payment dates.
Premature redemption
SGBs will be redeemed for cash at the end of the investment tenure. Redemption will take place at the prevailing gold price, giving the investor the value of the bond plus capital appreciation in gold price. After five years, investors can press for premature redemption.
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