Sovereign Gold Bonds Guide - Basics you need to know before Investing | 5paisa Article

Sovereign Gold Bonds Guide - Basics you need to know before Investing | 5paisa Article

by Priyanka Sharma Last Updated: Dec 11, 2022 - 07:02 am 214.3k Views
Listen icon

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

How do you rate this blog?

Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage

oda_gif_reasons_colorful

About the Author

Open Free Demat Account
Resend OTP
Please Enter OTP
Mobile No. belongs to

By proceeding, you agree to the T&C.

Latest Blogs
Analysis of Upcoming IPO - Mukka Proteins Limited

What Mukka Proteins Do? Products containing fish protein are produced by Mukka Proteins Limited. firm manufactures & distributes fish meal, fish oil, & fish soluble paste—all necessary components for creation of aqua feed, which is used for fish & shrimp, poultry feed, which is used for broilers & layers, & pet food, which is used for dog & cat food. Upcoming IPO, exports its products to following countries

Market Outlook for 23 February 2024

Nifty witnessed a sharp correction during the opening hour on the weekly expiry day. The index sneaked below the 21900 mark, but it started recovering in the later part of the day and as it surpassed the 22000 mark, the momentum accelerated in the last hour of trade. The index rallied sharply to register a new high and end the day above 22200.

Stock in Action – Bajaj Consumer Ltd

Bajaj Consumer Stock Movement of Day