Sovereign gold bonds scheme - 2020-21


Dear Friends,


Hope you all are staying safe with your family in these tough times of Covid-19.

 With ample of time in hand, I definitely suggest to sort out your finances, realign the portfolio as per your risk tolerance and future goals.

You all should have heard about the current Sovereign Gold Bond (SGB) scheme going on for the current financial year 2020-21. SGB is available with tenure of 8 years with exit options available in 5th, 6th, 7th year also.


With Akshay Tritiya round the corner, why not give SGB a shot ? If you need more details before making an informed decision , please read below.

 

Let’s discuss about this scheme in detail.

What is Sovereign gold bonds (SGB) scheme?

SGB is a government security issued by Reserve Bank of India on behalf of Government of India. It is denominated in grams of Gold. You can buy from a minimum of 1 gram to a maximum of 4 Kilograms. SGBs are simple and useful substitute of holding physical gold.


Benefits of SGBs

There are multiple benefits of investing in SGBs over holding physical gold.
1.   SGB is available both in paper as well as Demat format. Cost of demat format SGB is Rs 50 per gram less than the paper format.
2.   Risk and cost of secured storage of physical gold is fully eliminated.
3.   No extra/hidden charges like making charges.
4.   No issue regarding the purity of gold.
5.   Government backed surety of market value of gold at the time of redemption as well as timely interest payout.
6.   SGB bear a rate of 2.50% fixed interest per annum on the purchase price.  Interest is credited bi annually to the bank account of investor.
7.   SGB can also be used as collateral for loan.
8.   SGB will be allowed to trade on exchanges for early exit of investors.
9.   On redemption of SGB after completing the tenure of 8 years, capital gain tax is exempted for individual.
10. Gold bond will be sold through banks, Stock Holding Corporation of India (SHCIL), designated post offices, and stock exchanges (NSE and BSE).
11. It is better than Gold ETF in terms of no charges that need to be paid for maintaining the SGB.



Risk of investment in SGB

If the Gold prices fall below the current price level, there will be capital loss of investment. But given the long term of investment there is very low chance of this happening.

The good news is Investor will never lose on the units of gold. Units will remain fixed, price may fluctuate.


How to buy SGB?

Any individual resident Indian, HUF, trust, charitable institutions etc can apply for the SGBs. Investors can apply for SGB through scheduled commercial banks and designated post offices or agents. Application forms are available both online and offline by all the participating banks, post offices and agents. Otherwise, forms can also be downloaded from RBI website; filled and deposited to any bank along with money and KYC documents (if not already a KYC compliant customer of bank).


Minimum and Maximum limit of investment in SGB

SGB is issued in denominations of 1 gram of Gold and in multiples thereof. Minimum investment is 1 gram and maximum investment is 4 kilograms per investor per financial year. Joint holding is also allowed for investment.


Subscription period for financial year 2016-17

Tranche | Date of Subscription | Date of Issuance
2020-21 Series I April 20-24, 2020 April 28, 2020
2020-21 Series II May 11-15, 2020 May 19, 2020
2020-21 Series III June 08-12, 2020 June 16, 2020
2020-21 Series IV July 06-10, 2020 July 14, 2020
2020-21 Series V August 03-07, 2020 August 11, 2020
2020-21 Series VI Aug.31-Sept.04, 2020 September 08, 2020


Issuance price for 2020-21 Series I : 

Rs. 4589/- per gram for applying online and making online payment.
Rs. 4639/- per gram for paper format investors.

Issuance price for 2020-21 Series I :

Rs. 4590/- offline.
Rs. 4540/- online

Issuance price for 2020-21 Series III : 

Rs. 4677/- offline.
Rs. 4627/- online

Fun fact: price of per gram gold in SGB is calculated by averaging the price of gold in last 5 trading days.


Final Verdict: To subscribe or to give a miss?

My personal opinion is:
1. We all should have maximum 10% of our investment in Gold.
2. SGB should be preferred option over physical gold or Jewellery.
3. Earning 2.5% of interest on Gold investment is definitely "Sone pe Suhaga" / "Icing on the cake".


However, if you have any liquidity challenge due to the current COVID-19 pandemic, please do not rush to put all your money at this time when Gold prices are at all-time high. Exercise caution and do not break the thumb rule of no more than 10% investment of your portfolio in Gold.

 Please consult your finance advisor, before making any choice of investment.

If you have any suggestion or question, feel free to drop a comment here or mail me.

 Have a great time!




Comments

  1. RRSJune 08, 2020 8:13 pm

    Do the payment has to be done in one go? I mean suppose I want to buy 15 units of gold. Do the payment has to be done at one go or the payment can be done in installments.

    Also, can I buy multiple times during the issuance of the bond?

    ReplyDelete
    Replies
    1. UnknownJune 09, 2020 8:45 pm

      Hi RRS ,
      Payment need to be done in one go. No option of installment.

      However, you can buy multiple times in the same SGB issue (within the defined limits).

      Delete

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