Subscription for the sixth and the final instalment of the sovereign gold bond scheme will begin on August 31. This year, the government of India announced to issue gold bonds in six tranches during the initial six months of the year, of which allotment of the first five tranches is have concluded. It is the last chance for the investors who haven’t yet subscribed for these bonds to bag the deal.
Gold bonds are issued as an alternative to investing in physical gold, which is a precious metal and enjoy high demand in the global market. Investors who want a safe haven for their investment often opt to invest in gold bonds. These bonds are excellent investment instruments to add in your portfolio to diversify it. As compared to other investment vehicles, gold bonds are low-risk, offer assured returns on maturity along with an additional interest-earning at the rate of 2.5 percent.
RBI introduced gold bonds in 2015 as an alternative to investing in gold to curb the demand for physical metal in the market. In India, gold has always enjoyed high value due to its social and cultural importance. Indians buy gold on auspicious days as they believe it brings prosperity to the family. Apart from that, gold is a safe investment option with high liquidity and value. But investing in physical gold involves high risk related to issues of storing and security. Compared to that, bonds are paper gold or scrips. These bonds have allowed, even millennial investors, to invest in gold without hoarding the metal or jewellery.
Gold Bonds In A Volatile Market
Whenever volatility rose in the capital market, demand for precious metals had soared. It is because these metals are regarded as less volatile compared to equities and offer liquidity in the time of crisis. In recent time, amid COVID-19 turmoil, the price of gold has seen a steep rise, crossing the Rs 50,000 mark for ten grams in the Indian retail market. Demand for gold rose as capital market plummet, and investors were trying to park their investment with a less volatile asset class, which is gold. The previous tranches of sovereign gold bond scheme 2020-21 have seen hearty subscription from investors.
The final subscription window will open from August 31 to September 8.
Things to know before investing in 2020-21 scheme series 6
- The issue price is based on the market value of gold at the time of issuance. Typically, the issue price is set based on the gold price declared by the India Bullion and Jewellers Association Limited
- It is the average closing price of gold of 999 purity of three working days before the issue date. The redemption price is also calculated the same way – three days average closing price of gold at the time of redemption
- The bond is available for subscription to resident Indian individuals, HUFs, Charitable Institutions, Trusts, and Universities
- The minimum amount available for investment is one gram, and individual and HUF investors can invest up to 4 kg of gold
- Payment can be made through cash (up to Rs 20,000) or demand draft, cheque, or through electronic methods
- You can apply online for sovereign gold bond 2020 21 scheme series vi and receive Rs 50 discount on face value
- You can apply for these bonds through banks, SHCIL offices, designated Post Offices, agents, or broking houses like Angel One
- To invest in sovereign gold bonds, you would need to comply with the KYC norms and apply using single investor ID
- Joint holding is allowed. Even parents/guardians of minor children can invest on behalf of the minor
- The gold bonds earn an interest of 2.5 percent, which is subject to tax at the time of redemption. However, the redemption value will be tax-free
- SGBs are a low-risk investment. The risk associated is the volatility of gold price at the time of redemption
Indians always have an affinity for gold. And, India is the 2nd largest importer of the yellow metal. However, after the introduction of gold bonds, the demand for the metal has declined significantly in the domestic market.
Typically, gold bonds have an inverse relationship with the equities – bond demand rises when equity prices fall. So, demand for these bonds may see a steep rise under the current market condition.