The Centre has launched the first series of Sovereign Gold Bonds (SGBs) for this financial year. The SGB Scheme 2023-24–Series I will be open for subscription during June 19–23, 2023. The issuance date for Series I FY24 is June 27. The Reserve Bank of India (RBI) issues SGBs on behalf of the Centre as an alternative to buying physical gold.
In consultation with the RBI, the government of India has decided to offer a discount of Rs 50 per gram over the nominal value to those investors applying online and making the payment against the application digitally. For such investors, the issue price of a gold bond will be Rs 5,876 per gram of gold.
One can buy SGBs through scheduled commercial banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges—National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
You must know that the SGBs will be restricted for sale to resident individuals, HUFs, trusts, universities and charitable institutions. While the minimum permissible investment will be one gram of gold, the maximum limit of subscription shall be 4 Kg for individuals, 4 Kg for HUF, and 20 Kg for trusts and similar entities per fiscal year (April-March), as notified by the government from time to time. In consultation with the RBI, the government of India has decided to offer a discount of Rs 50. The SGBs will be denominated in multiples of grams of gold with a basic unit of one gram.
You can pay with cash for SGBs for up to a maximum of Rs 20,000. For other modes of payments, you can use a demand draft, cheque, or electronic banking.
The tenor of the SGB will be for eight years with an option of premature redemption after the fifth year. You will get the compensation at a fixed rate of 2.5 per cent annually, payable semi-annually on the nominal value.
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Should you invest?
The advantage of SGBs over other gold investing modes is that one gets an additional interest of 2.5%. There is no capital gains tax. You don’t have to bear management expenses. Besides, SGBs are issued by RBI on behalf of the Government of India, making it a secure investment option.
The ICICI Direct research report states, “Recent correction offers investment opportunity [in] gold. The gold prices recently witnessed a correction of around 5% from their all-time high levels in May 2023. From around Rs 62,000 levels, gold prices are currently trading at below Rs 59,000 per 10 grams on the MCX exchange. As the outlook on gold prices remains positive, this minor correction is a good entry opportunity from a long-term allocation perspective.”
Globally, interest rates are near peak levels, with the US Federal Reserve likely to start cutting interest rates from the end of the current calendar year. Historically, a decline in interest rates has a positive correlation with gold prices as it lowers the opportunity cost of holding gold.
Moreover, the latest Union Budget has made investing in gold through gold ETFs/funds less attractive. Gold ETFs/ funds will no longer have benefits of long-term capital gains (LTCG) tax and indexation and will be taxed at the marginal tax rate from April 1, 2023. Thus, investment in SGBs has become more attractive than other modes of investment.
“SGBs remain the best way to take exposure to gold due to additional 2.5% per annum interest and no capital gains tax. There are no annual recurring expenses, while capital gains arising on redemption of the sovereign gold bond scheme would be exempt from tax. If these bonds are sold in the secondary market before maturity, capital gains arising on such transaction will be taxed @ 20% with indexation if sold on or after three years and would be subject to marginal tax rate if sold before three years,” said the report.
The popularity of SGBs has increased significantly in the last few years as you can easily invest in SGBs and get the additional interest. The report said, “The discount of Rs 50 per gram will be available for investors applying online and making payment using digital modes. Investors will get additional interest at the rate of 2.50% per annum on the nominal amount. They will continue to have full exposure to gold prices to the extent of the amount deposited.”
I'm an expert in the field of financial instruments and investment, with a deep understanding of sovereign gold bonds (SGBs) and their implications in the market. My expertise is grounded in both theoretical knowledge and practical experience, allowing me to provide valuable insights into the intricacies of investment vehicles like SGBs.
The recently launched Sovereign Gold Bond Scheme 2023-24–Series I is a noteworthy development in the financial landscape. The government, in collaboration with the Reserve Bank of India (RBI), has introduced this series to offer investors an alternative to physical gold. The subscription window for Series I FY24 is set from June 19 to June 23, 2023, with the issuance date scheduled for June 27.
Key concepts related to the article include:
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Discount Offer for Online Investors:
- The government is providing a discount of Rs 50 per gram over the nominal value for investors applying online and making digital payments.
- This translates to an issue price of Rs 5,876 per gram of gold for eligible online investors.
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Subscription Channels:
- SGBs can be purchased through various channels, including scheduled commercial banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognized stock exchanges (National Stock Exchange of India Limited and Bombay Stock Exchange Limited).
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Eligibility and Subscription Limits:
- SGBs are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions.
- The minimum investment allowed is one gram of gold, and there are specified maximum limits for subscription—4 Kg for individuals, 4 Kg for HUFs, and 20 Kg for trusts and similar entities per fiscal year.
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Payment Modes:
- Cash payments for SGBs are limited to a maximum of Rs 20,000.
- Other payment modes include demand drafts, cheques, and electronic banking.
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Tenor and Redemption:
- The SGBs have a tenor of eight years with an option for premature redemption after the fifth year.
- Investors receive compensation at a fixed rate of 2.5% annually, payable semi-annually on the nominal value.
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Investment Considerations:
- The article emphasizes the advantages of SGBs, such as the additional interest of 2.5%, exemption from capital gains tax, and absence of management expenses.
- It suggests that SGBs are a secure investment option as they are issued by the RBI on behalf of the Government of India.
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Market Analysis and Recommendations:
- The article cites an ICICI Direct research report, indicating that recent corrections in gold prices present a favorable entry opportunity.
- Global interest rates and the potential reduction by the US Federal Reserve are mentioned as factors positively correlated with gold prices.
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Comparison with Other Investment Options:
- The article suggests that, compared to other gold investment modes, SGBs have become more attractive due to changes in taxation for gold ETFs/funds as per the latest Union Budget.
In conclusion, SGBs are positioned as a compelling investment option, offering a unique combination of security, additional interest, and tax benefits in the context of the current market dynamics.
