Remember to set aside some money this month, if you’ve been planning to invest in gold for a while. This is because the second tranche of the Sovereign Gold Bond Scheme (SGB) 2023-24 – Series II, supported by the central government, opens for subscription from September 11 to September 15, following the RBI’s announcement on June 15, 2023. The issue price has not been announced yet. Once the subscription window opens, seize the opportunity to invest, as it is one of the most cost-effective and efficient ways to invest in paper gold.
If you plan to invest in gold this month, do set aside some money as the second tranche of the Sovereign Gold Bond Scheme (SGB) 2023-24 – Series II, supported by the central government, opens for subscription from September 11 to September 15, following the RBI’s announcement on June 15, 2023.
The issue price has not been announced yet.
SGBs are issued by the Reserve Bank of India on behalf of the government as an alternative to purchasing physical gold. Introduced in November 2015, SGBs aim to reduce the demand for physical gold and redirect a portion of domestic savings from gold purchases to financial savings. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
The minimum investment in the bond is one gram, with a maximum limit of four kilogrammes every fiscal year for people. Additionally, individuals, trusts, universities, Hindu Undivided Families (HUFs), and charity institutions are all eligible investors.
The advantage of SGBs is the 2.5 per cent interest per annum, which is paid semi-annually on the nominal value. In the meantime, if the gold prices go up, then you anyway stand to gain from the price appreciation. These bonds are also free from default risk as the interest payments and the principal redemption are guaranteed by the government of India.
hey come with an 8-year lock-in period, but exit options are available in the 5th, 6th, and 7th year.
The Reserve Bank of India has also announced a schedule for the premature redemption of Sovereign Gold Bonds (SGBs), giving investors the option to redeem these bonds before their eight-year maturity date. This new announcement is valid from October 1, 2023, until March 31, 2024.
“Investors are advised to take note of the period for submission of requests for redemption of SGB, in case they choose to redeem their holdings before maturity,” RBI said in a statement.
“One can argue that gold ETFs can also be held in demat form but then there is a cost aspect to gold ETFs. You normally buy gold ETFs at the prevailing unit price of gold units but there is a transaction cost each time you enter and exit. Additionally, the annual AMC cost of 1% also gets debited to the NAV of your gold ETF. SGBs, on the other hand, have no such costs loaded on to them. On the contrary, these gold bonds are normally issued by the government at a discount to the average market price, offering an added advantage,according to brokerage Motilal Oswal.
The deadlines for investors to file requests for premature redemption for SGB 2017-18 Series III, which was issued on October 16, 2017, will be from September 16, 2023, to October 6, 2023.
The dates for submitting a request for premature redemption for SGB 2017-18 Series IV, which was issued on October 23, 2017, will be from September 23, 2023, to October 13, 2023.
The deadline for making a request for premature redemption for SGB 2017-18 Series V, which was issued on October 30, 2017, will be from September 30, 2023, to October 20, 2023.
“Sovereign gold bonds (SGB) allow investors to participate in the potential growth of gold as an asset class, with prices having doubled in the past 10 years. SGB offers the convenience of purchasing as little as one gram of gold, providing accessibility to retail investors. The dematerialized form of the bonds ensures purity and eliminates concerns about deductions associated with physical gold,” said Abhijit Roy, CEO, GoldenPi, a Zerodha-backed investment platform.
Sovereign Gold Bonds are relatively more tax efficient compared to physical gold.
“Gold is treated as a non-financial asset and hence the definition of capital gains is a holding period of 3 years in case of gold. If you sell you gold within a period of 3 years then you are liable to pay short-term capital gains tax at the peak rate that is applicable to you. If you sell gold after a period of 3 years, then it is classified as long-term capital gains. It will either be taxed at a rate of 10% without the benefit of indexation or at 20% with the benefit of indexation. In case of SGBs, redemption of gold bonds will be entirely tax free in the hands of the investor. (Gold bonds have tenure of 8 years and can be redeemed after a period of 5 years). However, if the SBGs are sold in the secondary market then they will attract capital gains at the extant rates. Interest on SGBs is taxable like normal interest receipts at your applicable tax rate,” said Motilal Oswal.
SGBs involve a risk of loss in case the market price of gold drops below the cost price. This is not specific only to SGBs and is applicable to gold as an investment. The central bank, however, assures investors that they will note incur losses as far as the quantity of gold allotted through SGBs is concerned, according to Fisdom.
