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Representative image (Photo: Reuters)
Representative image (Photo: Reuters)

April issue of sovereign gold bonds saw record subscription worth 822 crore

This is the highest ever subscription since the October 2016 issue

The first tranche of sovereign gold bond for FY21 saw people subscribe to a record 17.73 lakh units worth 822 crore as per data provided by the Reserve Bank of India. This is the highest ever subscription since the October 2016 issue. One unit of gold bonds is equal to one gram of gold and was priced at 4,639 for the first tranche of FY20.

The first issue of the sovereign gold bond scheme came in October 2015 and people bought 9.14 lakh units worth 245 crore. Its popularity surged as it is the only gold investment option to pay fixed guaranteed interest on investment in gold.

The October 2016 issue received the highest subscription as investors bought 35.98 lakh units of gold bonds worth Rs1,081 crore. The issue was priced at Rs3007 per unit.

However, post October 2016 the interest in gold bonds has been declining.

“You have to see the response to gold bonds in line with performance of other asset classes including equities which did relatively better in 2017 compared to gold. As people tend to move towards better performing asset classes. Along with that people realised the liquidity is not very good in the secondary market for gold bonds which makes exiting the bonds before the maturity little difficult," said Chirag Mehta, senior fund manager, alternative investments, Quantum Mutual Fund.

This year the April issue of gold bonds opened for subscription on 20 April and closed on 24 April 2020, a couple of days before Akshay Tritiya, an occasion considered auspicious to invest in gold. “Around 5-10% of the subscription could be attributed to the lockdown as people couldn’t purchase physical gold which they generally buy on the occasion of Akshaya Tritiya and some of them opted for gold bonds instead," said Chintan Kotak, Director, IIFL Securities Ltd.

Apart from this, gold is considered a safe haven asset. "In times of uncertainty, gold has always been a go to asset class," said Saurabh Bansal, founder of finatwork wealth services. This year as we are fighting the Coronavirus pandemic, other asset classes including equities have been thrashed badly, investors are flocking to safer assets such as gold. In the past one year gold has delivered a return of around 45%.

“People are understanding the importance of asset allocation and are shifting a portion of their money from other asset classes to gold," said Kotak.

Sovereign gold bonds are considered one of the best alternatives to invest in gold. “We have seen significant response in sovereign gold bonds in recent times as investors receive interest in addition to any favorable movement in gold prices," said Bansal.

The Reserve Bank of India has announced the dates of the upcoming issues of gold bonds till September. The next issue will open for subscription on 11 May

“This upcoming issue is likely to see good subscription or better subscription as we have already started receiving queries for investment from our clients who have already invested in gold bonds and want to invest more as well as those who are planning to invest in them," said Chintan Kotak, Director, IIFL Securities Ltd.

Investors should have gold in their portfolio as it provides diversification but should not allocate more than 10% of their assets in gold. While investing in gold bonds you should keep the lock-in in mind.

“Gold bonds suit those with a longer time horizon as these bonds come with long maturity (8 years) and limited liquidity in the secondary market. Those who wish to take positions for a shorter period, gold ETFs and gold savings mutual funds would suit them better," said Bansal.

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