Investments in sovereign gold bonds (SGBs) have risen sharply in the COVID-hit years as investors seek safer options amid volatile stock markets, with 2020-21 and 2021-22 accounting for nearly 75 % of total bond sales since program launch in November 2015.
The next tranche of SGB is expected to be open for subscription for five days starting Monday. The issue price was set at Rs 5,091 per gram of gold.
This will be the first issue of the current fiscal year.
In consultation with the Reserve Bank of India, the government has offered a rebate of Rs 50 per gram less than face value to investors who apply online.
Payment against the application is made in digital mode.
A total of Rs 38,693 crore (90 tonnes of gold) has been raised through the scheme since its inception in November 2015, according to RBI data.
During 2021-22 and 2020-21, the two fiscal years impacted by COVID, investors bought the bonds for a total amount of Rs 29,040 crore, or about 75% of total SGB sales since launch.
The Reserve Bank has issued ten tranches of SGB in 2021-22 for a total amount of Rs 12,991 crore (27 tonnes).
In 2020-21, the central bank issued 12 tranches of SGB for a total amount of Rs 16,049 crore (32.35 tons).
A total of Rs 9,652.78 crore (30.98 tonnes) has been raised by the end of the 2019-20 financial year through the program in 37 tranches since its inception in November 2015.
The first tranche of SGB was launched in November 2015. Subsequently, two tranches were launched in January and March 2016.
Rishad Manekia, founder and managing director of Kairos Capital, a Mumbai-based SEBI-registered investment advisory firm, said that SGBs could be seen as a substitute for holding physical gold, in addition to having a component of yield. It has the advantage of being government backed and an easy to store option.
“One thing to watch out for in these instruments is the lack of liquidity and lack of diversification. If you hold the bonds to maturity, liquidity is not an issue. However, if you wanted to get out early, your options are much more limited,” he said.
The term of SGBs is eight years with an option to prepay after the fifth year.
Deepak Jain, Managing Director of TaxManager.in, said SGBs are one of the safest modes of investment, offering capital appreciation and interest payments along with a government guarantee.
“But if you’re looking for aggressive returns, this isn’t the right investment. So depending on the case – in your investment portfolio – SGB should be no more than 5% to 8% of total investments,” said he declared. .
Regarding the taxation of Gold Sovereign Bonds, Kunal Savani, Partner, Cyril Amarchand Mangaldas, stated that the special tax regime provided in the Income Tax Act 1961 for the taxation of Gold Sovereign Bonds (SGB ) had been designed to encourage and induce investors to hold gold in a non-physical form for an extended period of time.
“As a result, only gains resulting from the redemption of SGB after the expiration of the maturity period (i.e. eight years) were exempt from tax, while gains resulting from early redemption and secondary transfers have been kept in the tax net,” he said.
Investors are remunerated at a fixed rate of 2.50% per annum, payable semi-annually on the nominal value.
SGBs are sold through banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited ( BSE).
The SGB program was launched in November 2015 to reduce the demand for physical gold and transfer part of the national savings used for the purchase of gold to financial savings.