Investing in Sovereign Bonds: Opportunities for investors

Angel One’s client base grows 71.5% YoY to 11.88 million in October’22

Angel One’s client base grows 71.5% YoY to 11.88 million in October’22

What are these bonds and key features?

Sovereign gold Bonds are one of the ways of digital investment in gold. These bonds are issued by the Reserve Bank of India on behalf of the Government of India. These bonds are denominated in multiples of grams of gold with a basic unit of 1 gram

The tenor of the bond will be for the period of 8 years with exit options in the 5th, 6th, and 7th years to be exercised on the interest payment dates. The minimum permissible limit will be 1 gram of gold and the maximum permissible limit shall be 4 KG for individuals, 4 Kg for HUF, and 20 Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time.

The redemption price will be in Indian Rupees based on the simple average of closing price of gold of 999 purity of the previous 3 working days published by IBJA. The investors will be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value. Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

Why SGB are better bet in comparison to physical gold?

Investing in gold is much easier and more convenient now. Sovereign Gold Bonds (SGBs) are the perfect alternative to investment in physical gold. With these bonds, you can enjoy capital appreciation and also earn interest every year. These bonds, issued by the Government of India, also eliminate several risks associated with physical gold.

Unlike physical gold which does not provide any interest, SGB provides interest to the investor at the rate of 2.5% per annum and the last interest will be credited to the investor along with the principal amount. Also, these bonds carry a sovereign guarantee on redemption amount and on the interest as well.

The price of the Bond will be fixed in Indian Rupees on the basis of the simple average closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 business days of the week preceding the subscription period. The issue price of the Gold Bonds will be ₹ 50 per gram less for those who subscribe online and pay through digital mode. SGBs are not taxable if held till maturity

Opportunities for investors

The price of gold has increased in recent years as is visible in the gold price in the international as well as domestic markets in the chart above. Sovereign gold Bonds are suitable for those investors who don’t want to burden themselves with physical gold and storage issues.

Moreover, it is suitable for a longer-term perspective. Hence, our advice to investors is to take advantage of these digital opportunities for investments in gold. Ideally, one must allocate 10-15% of their portfolio towards investments in gold to systematically balance the overall returns. Since gold has always given good returns over the long term, investors should diversify their portfolio into gold as an alternative value proposition.

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