Open to subscription from February 12-16, the issue price is Rs 6,262 per gm
The subscription for the last tranche of sovereign gold bonds (SGBs) for this financial year will open on February 12 and close on 16. The issue price has been fixed at Rs 6,262 per gram. The last tranche issued in December 2023 was priced at Rs 6,199 per gm. As these bonds have outperformed returns from physical gold and gold exchange traded funds (ETFs), individuals should look at investing in them to earn tax-free returns.
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Investors get a fixed interest rate of 2.5% per annum, disbursed semi-annually based on the nominal value of their investment. This translates to an effective interest rate of 1.25% for each payment, subject to taxation according to the investor’s income tax bracket. Together with the fixed interest rate and the appreciation value of the metal, the yield is 9%- 12% compound annual growth rate throughout the maturity period.
Retaining the SGBs until maturity for eight years allows investors to qualify for exemption from capital gains tax on the final redemption amount. Investors can go for premature redemption after the fifth year. However, the gains at the time of premature redemption will be taxed.
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These bonds are issued by RBI in multiple tranches throughout the year. Investors can also buy the bonds from the secondary market. A resident Indian can buy SGBs from any branche or office of nationalised banks, designated post offices, scheduled foreign banks, scheduled private banks, National Stock Exchange and Bombay Stock Exchange. Non-resident Indians (NRI) are not eligible to purchase SGBs. However, if a resident becomes an NRI after purchasing an SGB, then he can continue to hold the SGB until maturity. The minimum amount of investment is one gram and the maximum limit in a financial year is four kilograms for individuals and 20 kg for trusts.
Abhijit Roy, CEO, GoldenPi, an online investment platform, says the government guarantee provides more security for SGBs, which may be preferred over gold exchange-traded funds. “When combined with a SIP-like strategy, SGBs offer investors a compelling option, as they combine fixed income benefits with capital appreciation in a safe, government-backed structure, all without the need for ongoing management fees or making charges.”
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Gold outlook
Gold will continue to attract investment as a proven hedge against other asset classes. Chirag Mehta, CIO, Quantum AMC, says gold is likely to lose some appeal and stay volatile in the near term due to an uncertain monetary policy path, but the downside will remain limited given the eventuality of rate cuts in 2024 and growing geopolitical unrest. “Investors can use this period of consolidation to build their long-term exposure to gold.”
