Sovereign Gold Bonds Guide - Basics you need to know before Investing | 5paisa Article
17 Apr 2017
Priyanka Sharma
Sovereign Gold Bonds are the new-age way of investing in gold. It
presents an opportunity to invest in the precious metal that is not in the form of
jewelry, coins or a bar, overcoming the hassles of physical safekeeping or theft, the
expenses of a locker, and getting rid of impurities in gold. At same time, it ensures
better returns as compared to physical gold, besides providing interest on the amount
invested.
The Gold Monetization scheme was launched by Prime Minister Narendra
Modi in November 2015. It sought to bring out some 20,000 tonnes of gold from households
and temples, and merge into the mainstream banking system.
In general, buying paper gold will help the government in controlling
gold import, and Sovereign Gold Bonds is just a start. According to one estimate, only
3060 kg of gold have been collected from five tranches so far.
The government regularly announces tranches of Sovereign Gold Bond
(SGB) Scheme, the details of which are posted on the RBI website. In its latest offering,
applications for the bond issue were accepted February 27- March 3, 2017, while the bonds
were issued on March 17, 2017. The scheme enjoys immense government attention as
Shaktikanta Das, Secretary, Economic Affairs Department, tweeted on the latest launch,
"excellent opportunity to invest and benefit from gold price appreciation".
There is little doubt that Sovereign Gold Bonds can be helpful in
diversifying one’s portfolio. By investing in SGB, one can open two simultaneous
streams of revenue. One from the movement of gold prices and another from fixed interest
rate.
And so before you take the plunge and get involved in Sovereign Gold
Bonds, here are a few pointers to keep in mind:
Alternative exposure to gold
Don't put all your eggs in one basket. It is always good to diversify
your portfolio with around 10-15% invested in gold.
Sovereign Gold Bonds offer a solid alternative to take exposure to gold
as it offers additional interest. There are no annual recurring expenses as compared with
gold ETFs (expense ratio in ETF is 1%). The sovereign gold bonds will be sold through
banks, Stock Holding Corporation of India (SHCIL), designated post offices and the
National Stock Exchange of India and the Bombay Stock Exchange, which would allow early
exit.
Can be used as collateral
Bonds can be used as collateral for loans. The loan-to-value (LTV)
ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank of India (RBI)
from time to time.
Who can buy the Bonds
The bonds are restricted for sale to resident Indian entities,
including individuals, HUFs, trusts, universities and charitable institutions. Bonds will
be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
Interest rate
Investors will be compensated at a fixed rate of 2.5% per annum payable
semi-annually on the nominal value.
Tenure
The tenure of the bond will be for a period of eight years. However, an
exit option is available from the fifth year.
How the SGBs have fared so far
Scheme
|
Issue period
|
Issue price (Rs/gm)
|
Sovereign Gold Bond 2015-16
|
Nov 5 – Nov 20, 2015
|
2648
|
SGB 2016
|
Jan 18 – Jan 22, 2016
|
2600
|
SGB 2016 – Series II
|
March 8- March 14, 2016
|
2916
|
SGB 2016 - 17 Series I
|
July 18 – July 22, 2016
|
3119
|
SGB 2016 - 17 Series II
|
Sep 1 – Sep 9, 2016
|
3150
|
SGB 2016 – 17 Series III
|
Oct 24 – Nov 2, 2016
|
2957
|
SGB 2016 – 17 Series IV
|
Feb 27 – March 3, 2017
|
2893
|
Prices as on Feb 23, 2017
Source: RBI