The Sovereign Gold Bond offers a good opportunity for the investors to acquire gold for their investment portfolios.
The first tranche of Sovereign Gold Bond (SGB) scheme FY 2021, launched by the Reserve Bank of India (RBI) on Monday is expected to get good response in these uncertain times due to the COVID-19 pandemic. The pandemic has brought the economic activities at a standstill across the globe as 90 per cent of the world population is under lockdown.
For the SGB scheme, the minimum investment is 1gm of gold at Rs 4639. Investors applying through online/digital mode will get a discount of Rs 50/gm. The Sovereign Gold Bond, which is the first this year, in a series of six issues that are going to come up every month, offers a good opportunity for the investors to acquire gold for their investment portfolios. Gold is used as a natural hedge against uncertainty. The gold bond, issued first time in 2015 in India, was at around Rs 2680/gm.
Dr. Joseph Thomas, Head of Research at Emkay Wealth Management, says, “These SGBs allotted in paperless form offer a 2.50 per cent interest per annum, payable semi-annually, and also has the benefit of exemption from capital gains tax after a holding period of three years”.
Listing out benefits of investing in SGBs for investors, Nish Bhatt, CEO & founder, Millwood Kane International, an investment consulting firm says, “Since SGBs can be held in paperless/digital form, there are no hassles of holding Gold in physical form. Its purity is guaranteed as it has the backing of Government of India. It also has an advantage over physical gold as when you sell SGBs, there is no loss like making/moulding charges as in case of gold jewellery. These bonds are exempted from capital gains if held till maturity of 8 years. These bonds are liquid also as these are traded on stock exchanges (SEs) within a fortnight of issuance by RBI”.
“Historically, Gold prices rise steadily and more in times of economic turmoil. On the opposite end of the scale when economies are flourishing, gold values fall as more adventurous and risky investments are made,” Bhatt added.
With unprecedented developments and the consequent fall in the global economies and markets, gold is likely to remain well bid until the river of uncertainties is crossed. There is a substantial growing demand for gold from central banks across the globe and also by ETFs in recent years.
Dr Joseph says, “All these factors will keep the gold prices high, and only with an elimination of the current uncertainties and a rise in the US interest rates, we may see any halt in the upward movement in gold prices. Strategically, an amount equivalent to 5 per cent of the overall portfolio should be invested in gold."