Sovereign Gold Bond Scheme Series V is now open for subscription

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The Sovereign Gold Bond Scheme 2021-22 – Series V opened on Monday for subscription. The fifth tranche will remain open for subscription till August 13. The finance ministry has fixed the issue price of the bond during the subscription period at Rs 4,790/gm.

Investors can avail of a discount of Rs 50/gm if they are applying online and making digital payments.

What is Sovereign Gold Bond Scheme (SGB)?

SGBs are government securities denominated in grammes of gold. The bond is issued by the Reserve Bank of India (RBI) on behalf of the government. According to the RBI, SGBs are “substitutes for holding physical gold”. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.

Who can buy?

Individuals, HUFs, trusts, universities, and charitable institutions can apply for SGBs. The minimum investment is one gramme with a maximum limit of subscription of 4 kg for individuals, 4 kg for HUF, and 20 kg for trusts and similar entities.

Risks

The RBI has listed capital loss as a risk if the market price of gold declines. However, the investor does not lose in terms of the units of gold. SGBS can be purchased from nationalised banks, private banks, designated post offices, etc.

Returns

The Reserve Bank will pay the prevailing value of gold at the time of maturity. Also, 2.5% interest is payable half-yearly and bonds will be listed on bourses.

SGB has a tenure of eight years and has an exit option for investors after five years, on each interest payment date. The other ways to buy digital gold are through a gold exchange-traded fund (ETF) and gold fund of funds. But those investments charge expenses – around half a percent each year.

Cost and tax implication

Unlike other forms of digital gold such as gold exchange-traded funds and gold fund of funds, if held till maturity, profits from SGBs are exempt from capital gains tax.

Disadvantage

One major disadvantage of SGBs is that they are liquid. Often they trade at a discount to the spot prices on stock exchanges.

Advantage

Gold is considered a safe haven for investors and is one of the best bets against inflation in the long term. Gold prices are also expected to go up and touch even Rs 60,000/10 gm in the near term, according to investment advisors.