Sovereign Gold Bond Series VIII at ₹5127. Should you invest this Dhanteras?3 min read . Updated: 12 Nov 2020, 03:22 PM IST
- Those who buy the gold bonds online will get a discount of ₹50. Sovereign Gold Bonds are a government instrument that track the price of gold and pay interest of 2.5% per annum
The Reserve Bank of India (RBI) has come out with an issue of sovereign gold bonds (SGBs) which will close for subscription on Dhanteras (13 November), a date regarded auspicious by some. The issue is priced at 5,127 per unit (1 unit is equal to 1 gram of gold) based on the average price of gold in the week before the issue opened for subscription. Those who buy the gold bonds online will get a discount of ₹50. Sovereign Gold Bonds are a government instrument that track the price of gold and pay interest of 2.5% per annum. They are typically purchased from banks.
Experts say that if you are planning to buy gold for long-term then you should go for these bonds.
“SGBs are for someone who is looking long-term for gold. If you are someone who is looking for tactical investment in gold, then gold exchange traded funds and gold mutual funds make more sense for you as there the liquidity is better. If you are investing in gold bonds for long-term, the other benefits also kick in that the capital gains tax is not applicable on maturity. Therefore, it will make sense for you to invest in SGBs for long-term," said Saurabh Bansal, Founder of Finatwork Wealth Services. Sovereign Gold Bonds have a tenor of 8 years but you can go for premature exit after 5 years. They are also listed and traded on the stock exchange but the liquidity is generally low and may not be possible to sell before maturity.
Sovereign Gold bonds are considered one of the best investment options for those planning to invest in gold for long-term as they are the only instrument which provides interest of 2.5% on the invested amount. Therefore, apart from the capital appreciation, one benefits from regular interest income which is credited in a person’s account on a semi-annual basis.
Gold has delivered around 30% this year given the uncertainty over the economic impact of the covid-19 pandemic. However, experts believe that the prices may show some volatility in the short-term but the long-term outlook remains positive.
"Prices are expected to correct when the vaccine comes in. Economies are still weak and fragile and the governments are expected to bring in more stimulus leading to more money supply. Rates are likely to stay lower for the next 2-3 years at least. So, overall from the macros economic outlook remains favourable for gold," said Chirag Mehta, senior fund manager, alternative investments, Quantum AMC.
“Rising Covid-19 cases, central banks' accommodative stance & stimulus measures, excess liquidity, to and fro negotiations in the Covid-19 relief bill, lower bond yields, are also few of the major factors which continue to support the gold prices," said Navneet Damani, vice president, Commodities Research, Motilal Oswal Financial Services Ltd.
“However, in the short-term there will be volatility in prices, therefore, whichever instrument an investor is investing in be it gold bonds or gold ETFs, they should invest in a staggered manner," said Mehta.
Damani also believes that those who are looking to buyi in small quantities can buy gold bonds from secondary market as they are trading at a discount. “While the November 2020 SGB is available at Rs.5127 per gms, the previous ones are available at 4850-4900. Liquidity here is slim for the listed ones and smaller participants can look to buy it from the exchange, but for large quantities, one has to look at the currently available bond. Off late the discount for the already listed bonds have increased and buying from secondary market is also a good option," said Damani.