Sovereign Gold Bond (SGB) Scheme Series III for the fiscal year 2023-2024 is scheduled to open on December 18 and will close on December 22. Reserve Bank of India on Friday announced that the issue price for the next tranche of Sovereign Gold Bond has been fixed at Rs 6,199 per gram . “The nominal value of the bond based on the simple average of closing price (published by the IBJA) for gold of 999 purity of the last three working days of the week preceding the subscription period, i.e. December 13, December 14, and December 15, 2023 works out to be Rs 6,199 per gram of gold," RBI said in a notification on December 15.
The issue price of the SGBs will be less by Rs 50 per gram for the investors who subscribe online and pay through the digital mode. The SGBs will be sold through scheduled commercial banks (except small finance banks, payment banks and regional rural banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
The Sovereign Gold Bond Scheme was launched by the government in November 2015, under Gold Monetisation Scheme. Under the scheme, the issues are made open for subscription in tranches by RBI in consultation with GOI. RBI notifies the terms and conditions of the scheme from time to time. SGBs are government securities denominated in grams of gold. They serve as a substitute for holding physical gold. They not only reflect the current market value of gold at maturity but can also be traded on the stock exchange.
Investors purchase these bonds at the issue price using cash and receive cash upon maturity when the bonds are redeemed.
The tenure of SGBs is eight years with an option of premature redemption after the fifth year to be exercised on the date on which interest is payable.
They offer a 2.5 per cent interest per year, payable half-yearly on the nominal value of the bond. These bonds can be held in a demat account. At the time of redemption, the investor is paid the then prevailing price of gold.
"Recently, the SGB tranche 1 matured over its eight-year tenure and a net return of 12.9% was offered. Not only do the bonds bear interest at the rate of 2.50 per cent per annum on the amount of initial investment, investors can earn without depositing their gold, however, there is a lock-in period associated with gold bonds," said Soumil Gonsalves, Senior Associate, Kred-Jure.
Why should I buy SGB over physical gold? What are the benefits?
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.
Should you invest?
"Sovereign Gold Bonds (SGBs) enable investors to invest in gold without the necessity of holding it physically. They offer a fixed interest rate, tradability on exchanges, and potential tax benefits on capital gains at redemption. Investors looking for a financial asset tied to the price of gold, seeking periodic interest income might find SGBs advantageous" said Adhil Shetty, CEO of Bankbazaar.com
Point to note: Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961. The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond. TDS is not applicable on the bond. However, it is the responsibility of the bond holder to comply with the tax laws.
SGB provides a better option than physically storing gold. There are no more storage-related dangers or expenses. The market value of gold at the time of maturity and monthly interest are guaranteed to investors. If you purchase SGB on the secondary market and keep it until maturity in the 8th year, you will be eligible for a 100% capital gains exemption. As an alternative, you are not required to wait 5 years and can sell the SGB at any time.
"SGBs are often considered a more cost-effective alternative to physical gold due to the avoidance of significant making charges of 15-20% associated with buying and selling jewellery. Holding SGBs in paper form eliminates maintenance hassles and depreciation concerns, providing a convenient and efficient investment option. Additionally, SGBs offer the opportunity to earn interest, unlike physical gold, making them more attractive for investors seeking assured income. From a tax perspective, Sovereign Gold Bonds are relatively more tax-efficient compared to physical gold. Investors in SGBs also stand to benefit when the market price of gold rises, contributing to potential capital appreciation. However, it's important to note that SGBs have a lock-in period of 5 years, limiting immediate liquidity," said Abhijit Roy, CEO, GoldenPi.
Should you go for new or existing SGBs?
As per Value Research, one crucial consideration when looking at SGBs for investment is whether to opt for newly issued SGBs or those already listed in the secondary market.
"Always compare the prices of newly issued SGBs with those of existing SGBs with approximately the same maturity period. It's possible that existing SGBs may be trading at a discount.
However, in the secondary market, it's essential to gauge liquidity if you do not intend to hold the bonds until maturity. Higher liquidity makes selling easier. On the other hand, if you plan to hold the bond until maturity, liquidity becomes less relevant," it said in a note.
Regardless of whether you acquire an SGB in the primary or secondary market, capital gains upon maturity are exempt from taxation.
"However, if you choose to sell the bonds within one year, any gains will be added to your annual income and taxed according to your applicable income tax slab. If you sell the SGB after one year, capital gains will be taxed at 20 per cent after accounting for indexation benefits," said Vishal Goyal of Value Research.
The Gold Bond Scheme 2023-24 - Series IV is scheduled for February 12-16. Series I was open for subscription on June 19-23 this year, and Series II during September 11-15.
The maximum limit of subscription shall be 4 kg for individuals, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal year.
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