The Reserve Bank of India (RBI) has announced the launch of the Sovereign Gold Bond Scheme 2023-24 Series I. The subscription period for the scheme will be from June 19 to June 23.
Under the scheme, Sovereign Gold Bonds (SGBs) will be issued to investors at a price of Rs 5,926 per bond, which corresponds to the price of one gram of gold. Investors applying and paying using digital modes will receive a discount of Rs 50 per gram, resulting in an issue price of Rs 5,876. The SGBs will carry an annual interest rate of 2.5%, payable semi-annually.
SGBs have a tenure of eight years and are listed on stock exchanges, allowing investors to transact in them. After a lock-in period of five years, investors can also redeem the bonds with the RBI. The maturity value of the SGBs will be based on the prevailing price of gold at that time, in addition to the interest earned.
Investing in SGBs offers several advantages. It provides exposure to gold without the need to deal with physical gold, eliminating concerns such as theft, insurance, or safekeeping costs. SGBs also offer tax efficiency, with long-term capital gains on SGBs held for more than 36 months being taxed at a lower rate. Gains on SGBs held until maturity are exempt from tax.
However, it’s worth noting that SGB prices on the exchanges may not always reflect their fair value, making it challenging to encash them at their true worth. Investors should consider their investment horizon and allocate funds that can be locked away for the long term.
Gold is often seen as a hedge during periods of economic uncertainty and volatility in stock markets. Some experts believe that gold prices may experience a bull rally in the medium to long term, especially if interest rates are cut and real interest rates turn negative. However, the decision to invest in SGBs or any other form of gold should be based on individual investment goals and risk tolerance.
It’s advisable for investors to consult with a financial advisor and limit their exposure to gold to a reasonable percentage of their overall portfolio, typically around 10%. Additionally, investors should be aware of the lock-in period and consider their investment horizon before investing in SGBs.
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