Sovereign Gold Bonds open for subscription ahead of Diwali: 5 things to know

The issue price of the Sovereign Gold Bond scheme has been fixed at Rs 5,177 per gram, with a discount of Rs 50 per gram for those applying online.
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Days ahead of Dhanteras and Diwali, the eight tranche of the Sovereign Gold Bond (SGB) scheme for 2020-21 has opened for subscription on Monday (November 9) and will close on November 13, 2020. The Reserve Bank of India (RBI) has set the issue price for the Series VIII at Rs 5,177 per gram of gold. The Union government is also offering a discount of Rs 50 per gram to those investors applying and paying for the SGBs online. “For such investors, the issue price of Gold Bond will be Rs 5,127 per gram of gold,” the RBI said.

This gives consumers an option of buying gold at slightly cheaper rates ahead of Dhanteras, which is considered auspicious for purchase of gold. Here are five things to know:

What are Sovereign Gold Bonds

SGBs are government securities in the form of gold and are seen as a substitute for physical gold. The idea behind launching SGBs is to reduce the demand for physical gold. These bonds have a tenure of eight years. Investors have to buy a minimum of one gram of gold.

The previous issue took place between October 12 and 16, where the price was fixed at Rs 5,051.

This price is usually fixed based on the average closing price of gold of 999 purity (published by the India Bullion and Jewellers Association Ltd) in the last three business days of the week before the subscription period. In this case, it would be the average closing price of gold between November 4 and November 6, 2020.

What are the benefits of investing in SGBs?

At a time when the price of gold has been skyrocketing, SGBs are offered a slight discount if paid for online. Moreover, those investing in SGBs would get the market value of gold at the time of maturity. Investors also get an interest of 2.5% on the initial investment, which is paid semi-annually.

SGBs also take away storage costs and risks that come with physical storage of gold. Investors are also exempt from the capital gains tax on redemption of the bonds. SGBs can also be used as collateral while applying for loans.

Who can invest in SGBs?

SGBs are sold only to resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. While the minimum investment is one gram of gold, the maximum limit for subscription is 4 kg for individuals, 4 kg for HUF and 20 kg for trusts and similar entities per financial year.

How to buy and redeem them

SGBs can be bought from banks, Stock Holding Corporation of India (SHCIL), designated post offices, and the stock exchanges (NSE and BSE). However, small finance banks and payment banks cannot sell SGBs. Those wanting to buy the gold bonds can apply online through their bank’s website by stating the grams (in units) of gold they want to purchase along with their full name, address, and PAN details.

Investors will be informed a month before the maturity of the bond and the interest and amount during redemption will be credited (in rupees) to the bank account details provided while buying the SGB.

The amount of redemption will be based on the average price of gold three days before the exit date. While the gold bonds come with a tenure of eight years, there is an exit option after the fifth year where investors can exit before the interest payment date.

Current gold prices

Gold prices traditionally have been known to go up when there is any form of uncertainty in the market. Over the last week, with the United States of America awaiting results of its presidential elections, gold prices rallied, increasing by around Rs 1,500 per 10 grams in just about five days.

According to a Hindustan Times report, the price of spot gold on Monday is Rs 52,200 per 10 grams. On the multi-commodity exchange (MCX), where commodities such as gold are traded, gold futures for December went up about 0.45% to Rs 52,404 per 10 gram. A future is a deal to trade gold in a specific quantity at a price that’s determined at present, for delivery on a later date. Meanwhile, spot gold is the price at which gold is being sold and bought right now.  

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