The government of India announces issuance of the fourth tranche of sovereign gold bonds and the five days window of sovereign gold bond subscription opens on July 6th. Investors who are looking for alternative assets to shift their investments amid capital market volatility would like to enroll in these bonds. With the gold price in the retail market experiencing a phenomenal rise as the price crosses Rs 50,000 mark in the retail market, experts think it is the right time to invest in a gold bond. Accumulating gold even in small quantities will be favourable for long-term investment.
“Sovereign gold bonds are one of the best investment options in gold for long-term investments… For those who have little or no exposure to gold, this can be a good opportunity to add gold to their portfolio,” commented Rahul Agarwal, Director at Wealth Discovery, a Delhi-based financial service firm.
Gold as an asset is always considered an excellent choice to diversify a portfolio and hedge against the market. Compared to other asset classes, precious metals like gold are less impacted by market volatility but at the same time, highly liquid. Whenever there is turmoil in the capital market, which is highly sensitive to any change in investor sentiment related to market development, political changes, or like in the current situation of a virus outbreak, investors always seek refuge in gold. Sovereign gold bonds are great for investors who have little or no exposure in precious metal investing.
This year, the government has decided to launch six tranches of sovereign gold bonds (SGBs) to raise capital funds from the market in the first six months of the year. The first three windows are already closed, and this is the fourth installment. The next episodes are due in August and September, respectively.
The announcement carries more significance in the current economic condition of the country. India has already reached the fourth stage of nationwide lockdown without any sight of COVID-19 curve flattening anytime soon. This has already taken a toll on production and employment frontiers and may take several months to bounce back. Amid this situation, the capital market has been volatile with BSE and NSE, both taking the beating. Sovereign gold bond subscription will establish a stream of income for the investor, especially for those looking for long-term investment opportunities.
Few things to know about SGB phase – IV before investing
- Sovereign gold bond scheme subscription is a part of the government’s market-borrowing program
- The subscription window for sovereign gold bonds opens on July 6thand will remain open for five days
- The issue price is decided Rs 4,802 per gram of gold
- Government proposes Rs 50 discount on each gram for investors applying through online platforms
- To decide the bond price, the RBI has taken the closing price of gold of 999 purity for the last three working days before the subscription date and calculated a simple average
- The tenure of sovereign bonds is eight years. However, investors can opt to exit after five years
- Only residential investors, HUF, Universities, and charitable institutions are allowed to invest
- The minimum amount to invest is 1 gram and the maximum is decided as 4 kg for individual investors and HUF and 20 kg for trusts and other similar entities
The government introduced the scheme in 2015 to tackle the rising demand for physical gold in the market. Investing in gold is always considered of great value in India. Not only it has a cultural or social significance, but it is also considered an asset to rely on at the time of crisis. With time the tendency to accumulate physical gold has transformed into buying gold bonds, and it is considered a good alternative for investment.
The sovereign gold bonds will earn a fixed interest of 2.5 percent for eight years. These bonds are issued RBI on behalf of the government, available with large commercial banks, Stock Holding Corporation of India (SHCIL), authorized Post Offices, NSE, and BSE.