The Reserve Bank of India (RBI) opened its second tranche of sovereign gold bonds (SGBs) issue today. This is the second series of SGBs issued on behalf of the government this financial year, the first one being in June. The SGB Scheme 2022-23 Series II is open for subscription from August 22-26, 2022.
Since 2015 when SGBs were first issued by the RBI to allow people to monetise their investments in gold, many people have included them in their investment portfolios. Those with access to a handsome lumpsum amount invested in one go while others continued to make staggered investments every time these SGBs are issued as a way to reach their financial goals faster and more secure.
Now before you jump into avail this opportunity of investing money in paper gold, know the pros and cons of parking your money in it.
- The tenure of this scheme has been fixed at eight years though investors are allowed to redeem them post the completion of five years. They can avail of this option on the date when the interest is due.
- The denomination of the bonds is in multiples of grams of gold with a basic unit of one gram. You can make a minimum investment equivalent to one gram of gold. The maximum subscription limit is four kilograms for individuals and Hindu Undivided Families (HUFs) and 20 kg for trusts and similar entities every year.
- The issue price of gold has been fixed at ₹5,197 per gram of gold though investors applying online for the same and making digital payments can buy the same at a discount of ₹50 per gram to the nominal value. The price of gold in this tranche in August is ₹106 per gram more than the ₹5041 per gram investors had paid to buy SGBs in June this year.
- Investors can buy SGBs through commercial banks, the Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), notified post offices, both the NSE and BSE stock exchanges or through agents.
- You can pay for SGBs using cash up to ₹20,000 or a demand draft or by writing a cheque or through digital payment. Buying online will allow you to buy at a discount of ₹50 on every gram of gold. The RBI said, “For such investors, the issue price of gold bond will be ₹5,147 per gram of gold”.
- Investors parking money in SGBs will earn bi-annual interest as per Section 43 of the Income Tax Act, 1961. The interest rate has been fixed at 2.5 per cent per annum on the nominal value payable twice every year. There is no tax on the capital gains earned from the sale of SGBs while indexation benefits will be allowed on the capital gains earned by the receiver on the transfer of the SGB.
- SGBs are like other investment options in the sense that you can pledge them to avail of loans. The loan-to-value (LTV) ratio is the same as any other gold loan mandated by the RBI.
- Every application to buy an SGB must include the PAN Number issued by the Income Tax Department to individuals and other entities. The KYC norms will apply as that to the purchase of physical gold.
Gold is deemed as an effective hedge against inflation by personal finance veterans. How much you wish to invest in gold depends a lot on your financial goals and your risk-taking capacity. Gold as an investment has performed well in the past 10 years. However, overinvestment in gold is not recommended as portfolio diversification helps to benefit from all kinds of investments across all cycles.