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Is Sovereign Gold Bond the best way to invest in the yellow metal?
· One can buy even one gm @ Rs 4777.
· You can buy Gold- pure gold-.999 purity
· Investment fully secured- guaranteed by GOI
· You will get Rs 50 per gm discount—apply online.
· Substitute for holding physical gold
· Will be issued in 6 tranches
· Carries 2.5 % p.a interest, paid in 6 Months
· Tenor 8 years—early exit @ 5 years
· Exemption from Capital gains tax.
Under the Reserve Bank of India’s Sovereign Gold Bond scheme 2021-22, the first tranche of which opened on Monday, you can apply till this Friday, May 21. The bonds are nothing but government securities which act as substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. Denominated in multiples of gram(s) of gold with a basic unit of 1 gram, individuals and HUFs can buy anywhere between 1 gram and 4 kg in any given fiscal year.
Sovereign Gold Bond price
If you want to apply for the bond, you can bid for a minimum of one unit – equivalent to one gram of gold – at Rs 4,777. Those applying online get a discount of Rs 50. The RBI calculates the price of the bond on the basis of a simple average of closing price of gold of 999 purity for the last 3 working days of the week preceding the subscription period. In this tranche, they took price data from the India Bullion and Jewellers Association Ltd (IBJA) for May 11, 12 and 14 and the average came out to be Rs 4,777 per gram. For those applying online, the issue price will be Rs 4,727 after adjusting the discount. Even during redemption, the price is calculated similarly based on the average gold price during the last 3 days.
Sovereign Gold Bond dates
The RBI has issued the calendar of Sovereign Gold Bonds for the first-half of FY22. The bonds will be issued in six tranches from May 2021 to September 2021. Here are the application dates:
1) May 17–21
2) May 24–28
3) May 31-June 4
4) July 12-16
5) August 9-13
6) August 30-September 3
The tenor of these bonds is 8 years with an exit option after the 5th year. The investment on the maturity value will reflect the prevailing price of gold at that point of time.
Why invest in gold
Although gold appears to be losing its charm as an inflation hedge in the last few months as investors are preferring to buy cryptocurrency, yet several investment gurus recommend sticking to the good old yellow metal. “Gold prices move up in times of economic uncertainty. As we had seen last year, the spread of the pandemic and the fall in economic growth led to a rise in gold prices. When the uncertainty factor is removed, the price of gold loses its buoyancy,” Emkay Wealth said in a note to investors. The second factor that can drive up gold prices is inflation. “When prices of goods rise, the purchasing power of money comes down. Gold is considered to be an asset which retains its value and acts as a hedge against inflation,” it said.
Advantages of investing in gold bonds
Apart from buying physical gold, investors also have the option of e-gold and gold ETFs. While each one of them has its own set of advantages and disadvantages, what sets gold bonds apart from the rest is the interest of 2.5 per cent per annum paid to investors once every 6 months. So you get the double benefit of price appreciation in the long run as well as interest in the short term. Liquidity, however, can be an issue if you want to exit by selling the units on stock exchanges before the 5th year. Bonds are tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
Tax on gold bonds
The capital gains tax arising on redemption of Sovereign Gold Bond is exempted. But if you choose to exit before maturity (8 years), then you can claim indexation benefit on long-term capital gains.
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