Should you Invest in the Latest Sovereign Gold Bond issue?

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30 Aug, 2021

7 min read

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For the uninitiated, sovereign gold bonds can be understood to be certificates issued and mandated by the Reserve Bank of India.

What are Sovereign Gold Bonds?

They are issued against grams of gold. What makes them truly interesting is that they allow you to invest in gold without being burdened with having to securely look after any physical gold.

Instead, they allow you to make a secure investment owing to the fact that gold isn’t as influenced by fluctuations in the market the way other investments might be.

Owing to the fact sovereign gold bonds are issued by the Reserve Bank of India and fall under the government’s issuance of stocks, there exists a predetermined time frame within which one can subscribe to these stocks. This means that during this period a scheme for sovereign gold bonds is issued to investors in tranches.

Ordinarily, the Reserve Bank of India makes announcements pertaining to the issuance of sovereign gold bonds in a press release which is made in intervals of 2 to 3 months. Individuals have a week within which they can subscribe to the scheme.

Gold Today

From now on, the price of gold will depend upon the latest strain of the Coronavirus, the extent to which vaccinations occur, how soon and to what extent economies open up and the way in which policies tighten up. Keeping these facts in mind it is recommended that investors have gold in their portfolio as it allows for diversification and can provide protection against inflation.

Looking at the New Sovereign Gold Bond Scheme

Sovereign gold bond series v for the year 2021 to 2022 have been available for investors to subscribe as of August 10 this year. The time frame for subscription comes to a close on August 16.

The issue price for these is INR 4,790. This price has been set keeping in mind the average closing price which was released by the Indian Bullion and Jewellers Association limited. This average is based on the price of gold which has a 999 purity and takes into account the price for the previous three business days of the week prior to the subscription period. This means that IBJA took into account the last three business days of the first week of August.

Those who seek to invest in the sovereign gold bond scheme online are entitled to a discount of INR 50 owing to which they will have an issue price amounting to INR 4,740.

It is important to note that this issue price falls below that of the previous three rounds of sovereign gold bonds issued for 2021-2022 which makes it more enticing.

Things to Know about Sovereign Gold Bonds

Tenure – Sovereign gold bonds have a tenure that amounts to eight years. You can redeem them after 5 years from the interest payment dates. 

Form – They can be held in the physical form or in your Demat account. Conversions between the two forms can be made at any point in time. 

Selling your SGBs – Should you need to, you can sell your bonds prior to the five-year period ending. This sale can occur on the stock exchange.

Should you Invest in the New Gold Bond Scheme?

Gold serves as a viable safeguard against inflation and provides holders with liquidity should they need it in instances of political and economic instability.

India is home to the world’s most avid gold investors and sovereign gold bonds make for a viable investment for a number of reasons some of which have been listed below.

Interest – investments made accrue an interest. This occurs in stark contrast to physical gold which doesn’t generate additional interest. This interest is taxed however profits earned aren’t.

Capital gains – Adding to their appeal, capital gains generated via sovereign gold bonds do not incur any taxes. This is provided they have been redeemed via the Reserve Bank of India and haven’t been via the profits owed to sale on the stock exchanges. In such scenarios, indexation for computing comes into effect should the bonds be held for more than 36 months. Profits generated via bonds sold on stock exchanges prior to the 36-month time frame are recognized as short-term. They are taxed in accordance with the tax slab applicable to you.

Diversification – By adding sovereign gold bonds to your retinue, you diversify your portfolio which strengthens it.

Inflation – Gold investments including sovereign gold bonds protect against inflation.

Conclusion 

Prior to making any investment decisions first consider your portfolio, risk capacity, and whether you can afford to spare funds on the investment you choose.

FAQs

Q1. What is the tenure of sovereign gold bonds?
A1. Sovereign gold bonds have a tenure of 8 years.

Q2. Who can invest in a sovereign gold bond?
A2. An individual, trust, resident university, and trust (regardless of whether they are or aren’t charitable) is authorized to invest in a sovereign gold bond.

Q3. What is the price of the current series V sovereign gold bond 2021-2022?
A3. The current price for the series V sovereign gold bond 2021-2022 amounts to INR 4790.

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