The Sovereign Gold Bond (SGB) 2022-23 Series IV is open for subscription between March 6 and 10. This is the last tranche for this financial year. SGBs are issued by the Reserve Bank of India (RBI) on behalf of the government and thus, are one of the safest avenues for investors to take exposure to gold.
The issue price is fixed at ₹5,611 per gram of gold. Those who apply online will get a discount of ₹50 per gram and thus, the cost will be ₹5,561.
As mentioned, SGBs are very safe as they are backed by the government. Since it is issued digitally, investors need not worry about storage and costs associated with it.
Another key advantage is that, unlike other gold-related investments, you will receive an annual interest payment of 2.5 per cent, which adds to overall return.
Besides, there are no capital gain taxes if you hold the bonds till maturity, which is eight years. Comparatively, the long-term capital gain of gold ETFs (Exchange Traded Funds) is 20 per cent after indexation.
However, interest is taxable as income from other sources and will be taxed as per your slab.
Also, SGBs are accepted by banks as collateral for loans. And if you meet the eligibility criteria, you can be sure about the allotment.
The bonds can be bought online through the website of scheduled banks.
These bonds come with a lock-in period of five years i.e., you can only sell after this period. Even after the lock-in period is over, when you wish to sell it in the secondary market, you may not find buyers as the liquidity is low. This can also weigh on your overall return.
Nevertheless, for someone who wishes to make long-term investments, the advantages of SGBs significantly outweigh the disadvantages.
Things to know
Investors can buy SGBs from as low as one gram. The maximum limit for individuals and Hindu Undivided Families (HUF) is 4 kg, while the same for trusts and similar entities is 20 kg.
You can also buy offline through banks and designated post offices. There is a limit of ₹20,000 if the mode of payment is cash. Buying offline means you are losing out the ₹50 discount.
You can also get the bonds in demat form, for which you have to give a specific request.
If you decide to liquidate after the lock-in period of five years, you should inform the respective financial institution through which you bought 30 days prior to the coupon payment date. In case you sell in the secondary market prior to maturity, you will have an indexation benefit.
Note that the tax on interest is not deducted at source i.e., TDS is not applicable.
On maturity, the payment will be made based on the simple average of closing price gold of 999 purity of previous three business days from the date of repayment, published by the India Bullion and Jewellers Association Limited.
Should I subscribe?
Considering the uncertainties with respect to growth and the geo-political dynamics, we recommend investors have some exposure to gold, typically 10 per cent of your overall portfolio.
Interestingly, gold, in terms of the rupee, has outperformed Nifty 50 this year – the year-to-date return of gold and Nifty 50 stands at 1.4 per cent and minus 2.2 per cent respectively.
The yellow metal can be the shock absorber of your portfolio as it is considered a safe haven. To take exposure in gold, especially for the longs-term, SGB is a compelling option.
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