Everything You Need To Know About Sovereign Gold Bonds

According to gold’s current stock market prices, the precious metal is at an all-time low. August gold futures on the MCX (Multi-commodity exchange) dropped 0.4 percent to Rs 47,732 for 10 grams yesterday. The metal began at Rs 48,006 and ended marginally lower at Rs 47,951 according to today’s IBJA (Indian Bullion &Jewellers Association) prices for 999 pure gold. Gold, which has long been seen as a secure investment & inflation hedge, may be losing its luster, but gold-based assets remain popular.

With the third tranche of SGBs (Sovereign Gold Bonds) now up for a subscription, let’s take a deep dive into the numerous different gold investment options and cost-effective methods.

What are the Sovereign gold bonds, and how do they work? SGBs, which were introduced in 2015 as part of the Gold Monetisation Plan, are government-backed securities that come in denominations of 1 gram of gold & multiples of that. Consider them a physical gold equivalent, but without the costs of purchasing, selling, and visibly keeping bars or coins.

The stakeholder for each tranche is determined by computing the common scale of the daily closing of 999 pure gold as reported by IBJA on the last three working days prior to the subscription week.

The plan, which is executed on an annual basis, is presently in its fourth stage for the fiscal year 2021-2022, with such a five-day subscription window beginning July 12th and concluding July 16th. This is the entire launch schedule for all stages this year:

The issuance price for the (Series IV) current phase of an SGB subscription has been fixed at Rs 4,807 per gram of gold. Your stakes as an active fund are limited to 4 kilos. For trusts, as well as other government-notified organizations, the investment limitation cannot cross 20 kgs. On such a half-yearly basis, shareholders will get 2.5 percent tax on the actual value of the bond, while those who apply online will receive a discount of Rs 50 per gram.

Previous Results The first batch of SGBs, released in November 2015 at such a value of INR 2,684/unit and with an exit option after five years to address liquidity concerns, was available for early redeeming in May this year at a value of INR 4,837/unit.

This indicates that the investors made a profit of more than 80% over the initial investment, with a compound annual rate of 12.5%. The departure, on the other hand, is only available on interest payment days, which are fixed bi-annually.

BSE faculty member Anil Upadhyaya, on the other hand, dismisses SGBs as financial instruments, citing the low return of 2.5 percent and the strong reliance of gold costs on world political & financial stability, which can’t be predicted with confidence in the next 5-6 years.

However, given recent patterns, both gilt funds & gilt funds (10-year constant duration) have had continuous outflows throughout the current year, whereas Gold ETFs have seen consistent inflows despite the investment class’s poor returns. According to reports, gold prices in the Uk have corrected by around 4% this year.

So, what exactly are sovereign gold bonds? Is buying Sovereign Gold Bonds a better option than buying gold? Is it a great investment for people in the middle class? And a slew of other issues occurs whenever someone discusses investing in new assets, particularly Sovereign Gold Bonds. So, here’s an article that answers these questions.

What are Sovereign Gold Bonds (often referred to as SGBs)?

Government securities priced in gold grams are known as SGBs. They aren’t meant to be used in place of actual gold. The issuance price must be paid in cash, and the bonds must be repaid in cash at maturity. The bond is considered by the Reserve Bank of India on account of the Indian government.

Who is qualified to purchase Sovereign Gold Bonds?

SGB is open to anybody who is a resident of India as specified by the Foreign Exchange Regulation Act of 1999. Individuals, HUFs, trusts, universities, and charity institutions are all eligible investors. Individual investors who change their residency status from residential to non-resident may keep their SGB until they are redeemed or matured early.

Even minors can apply to invest in Sovereign Gold Bonds (SGBs), but the application must be filed on the minor’s behalf by his or her guardian.

Investment Minimums, Denomination, & Pricing:-

The SGBs are issued in one gram or multiples thereof, with a minimum subscription limit of one gram and a maximum subscription limit of four kilograms for individuals & HUFs, and twenty kilograms for trusts & similar entities as specified by the government from time to time.

The asset price of Gold Bonds will be determined in Indian rupees based on a simple aggregate of 999 purity closing prices reported by the Indian Bullion &Jewellers Association Limited over the last three working days of the week preceding the subscription period.

Note: For those investors who apply online and pay via the digital method, the strike price of gold Bonds would be 50 per gram less than the nominal value of the gold Bonds.

Application procedure

Issuing financial institutions offices/designated Post Offices/agents will supply the application form. It’s also available to download on the RBI’s site. Banks can provide an online application process.

Any individual interested in subscribing to a Gold Bond should submit an application in Form ‘A’ or a form similar to it to any receiving office, clearly specifying the grams of gold, complete name, & address of the applicant.