Sovereign gold bond scheme 2022: New issue opens today. Should you subscribe?

Sovereign gold bond scheme 2022: New issue of the government-backed gold bond scheme has opened today and the scheme will remain open for subscription till 26th August 2022. The Reserve Bank of India ((RBI) on behalf of the center has fixed issue price at ₹5,197 per gram. The bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and recognised stock exchanges — NSE and BSE. The tenor of the bond will be for a period of 8 years with an exit option after the 5th year to be exercised on the next interest payment dates.

According to market experts, one should subscribe to the second tranche of sovereign gold bond scheme as it provided an alternative to gold investment giving an additional return in the form of interest income. They said that is opportune for the investors as outlook for gold price is positive in the wake of rising global inflation.

Should you subscribe to new tranche?

Advising gold investors to subscribe to the new tranche of sovereign gold bond scheme 2022, Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking said, "The latest and the second tranche of Sovereign Gold Bond Scheme 2022-23 is open for subscription from today onwards and would last for five days till August 26.SGB is a great alternative to investing in gold as it not only provides additional returns in the form of interest income, but is also free from default risk, and issues like maintenance, security, and purity. So yes, SGB would be the right choice for investors, who look for steady and hassle-free investment in gold."

Echoing with Sugandha Sachdeva's views, Megh Mody, Commodities & Currencies Research Analyst at Prabhudas Lilladher said, "Gold is considered hedge against inflation and in India, demand for gold is going to stay. Long term investors will buy gold whether it is physical or sovereign gold bond. With geopolitical worries and inflation still not controlled across the globe, one can subscribe to the new tranche of sovereign gold bond scheme 2022."

Sovereign gold bond scheme benefits

Giving ‘subscribe’ tag to sovereign gold bond scheme, Nirpendra Yadav, Sr. Analyst — Commodity Research at Swastika Investmart listed out the following benefits of the gold bond scheme:

1] You will receive 2.5 per cent interest rate every year;

2] No expenses or other charges like ETF and Mutual funds; and

3] Guaranteed by the Government of India.

“Apart from the above-mentioned benefits, Sovereign Gold Bond prices are linked with Gold prices which most of the time rise on uncertainty, War, Pandemic, or any natural calamity. So investors get the benefit of Gold prices along with interest on their investment,” said Nirpendra Yadav of Swastika Investmart.

"It is an opportune time to invest in Sovereign Gold Bonds, as the overall outlook for gold is positive with elevated inflationary pressures worldwide working as a key tailwind for the precious metal. Besides, worries about a global economic slowdown and lingering geopolitical risks will keep gold in demand for its safe haven status. Even as there may be short-term volatility in prices owing to the concerns about the monetary tightening path of the US Fed, the US central bank is likely to slow down the pace of rate hikes, considering its impact on the economic growth that will underpin gold prices. Rising central bank gold purchases and upcoming festival demand will further support gold prices," said Sugandha Sachdeva of Religare Broking adding, "Considering the macro-economic backdrop, gold is a safe and steady investment and a great tool to diversify one’s portfolio for better risk-adjusted returns over the long run."

On gold price outlook, Megh Mody of Prabhudas Lilladher said, "MCX Gold has an overhead supply placed at ₹52,500, the yellow metal can plunge below ₹50,000 and reach in the zone of ₹48,500 levels. In next one year it is likely to remain in the range of ₹48,500 to ₹52,500 levels. Comex Gold has a crucial support placed at $1,680 per ounce levels. Breach of this level can sink prices near to $1,560 levels. For the couple of years it will be below $1,700 and can remain in a range of $1,450 to $1,550 levels.”

Sovereign gold bond scheme details

The minimum permissible investment limit in sovereign gold bond scheme is 1 gm of gold whereas maximum limit of subscription is 4 KG for individuals, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March).

The central government, in consultation with the Reserve Bank of India, has decided to offer a discount of ₹50 per gram, less than the nominal value, to those investors applying online and the payment against the application is made through digital mode.

The price of the bond is fixed in Indian currency on the basis of a simple average closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.