Sovereign Gold Bond Subscription Window Closes Soon. Should You Buy?

Sovereign Gold Bond Scheme 2020-21: Subscribers can even earn an interest on their investment in gold bonds; this is on top of the gold-linked return.

Sovereign Gold Bond Subscription Window Closes Soon. Should You Buy?

Overall trend in gold is expected to remain positive for the coming few years, say analysts

Series VI of the Sovereign Gold Bond scheme will be unavailable for subscription soon. Government-run gold bonds, linked to the market price of gold and offering an additional return of 2.5 per cent per annum, are one of the few options to invest in the yellow metal in a non-physical form. While gold has been used as a hedge against financial uncertainty and inflation, many financial planners suggest allocating about 10-15 per cent of funds to it in a portfolio at any given time.

Here's all you need to know about the Sovereign Gold Bond scheme, which is only available till September 4:

The sixth tranche of the gold bonds opened for five days starting August 31. This scheme, wherein the RBI issues gold price-linked bonds on behalf of government, was first launched in 2015, to curb imports of the precious metal.    

Resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions can invest in Sovereign Gold Bonds, subject to investment limits.

For individuals and HUFs, an upper limit of gold bonds equivalent to four kilograms of gold (one unit is equivalent to one gram) per financial year is applicable.

The gold-linked bonds can be purchased from the designated post office branches, stock exchanges BSE and NSE, and the Stock Holding Corporation. (Also Read: How To Buy Sovereign Gold Bonds)

The gold bonds come with a lock-in period of eight years, with an exit option after first five years.

Should You Buy?

"SGB is a good investment option for investors because it adds to the diversification and hedging aspect of a portfolio. Of late, gold prices have been extremely volatile and have also witnessed some correction; however investors should not be deterred by the short-term price fluctuations," said Rahul Agarwal, director of financial services firm Wealth Discovery. 

Issue Price

The sixth tranche is available at an issue price of Rs 5,117 per unit. The issue price of gold bonds is calculated by taking a simple average of spot rates provided by the Mumbai-based India Bullion and Jewellers Association (IBJA).

Online subscribers get a discount of Rs 50 per gram, which means if you are purchasing the bonds online, the issue price for you is Rs 5,067 per unit. (Also Read: How Price Of Government-Run Gold Bond Scheme Is Calculated)

Subscribers can even earn an interest on their investment in gold bonds; this is on top of the gold-linked return. An interest rate of 2.50 per cent per annum is applicable, payable semi-annually. The interest earned is taxable.

Currently, spot gold is nearly 7 per cent away from an all-time high of $2,089.20 per ounce, registered only this month. But many analysts believe gold is poised for higher levels on account of the uncertainty around the coronavirus pandemic and the resultant restrictions.

"Overall trend for gold prices is positive and is expected to remain positive for the coming few years, given the global economic uncertainty and the loose monetary policy that has been adopted by the central banks across the developed world," he added. (Also Read: Gold "Dream Run" May Continue)