A unique Investment Opportunity in ‘GOLD’



Unique investment opportunity in gold
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If you are interested to buy Gold then the government has a unique scheme for you.

Suppose you want to buy 10 gms of gold and paid cash (right now) to the government based on rates set by the bullion association now government takes your money gave you a piece of paper — A promissory note to pay you exactly what these 10 gms will be worth 8 years from now + Interest of 2.5% annually, paid semi-annually + Other benefits.

So instead of holding the actual physical gold. You can hold these bonds instead. As the gold is not in physical form so it’s safe and nobody can steal it from you.

Sovereign Gold Bonds (SGB) Details:

  • Price: Rs 4,639 per gram*
  • The minimum permissible investment: 1 gram of gold
  • The maximum permissible investment: 4 kilograms for individual, (20 kg for trusts and similar entities per fiscal.)
  • Maturity: 8 years (Exit option after the fifth year to be exercised on the interest payment dates.)
  • Interest rate: 2.5% annually, paid semi-annually
  • Taxes: The capital gains arising from the appreciation in gold prices is tax-free. The interest, however, is taxed at the relevant income slab.

*the issue price of the gold bonds will be Rs 50 per gram less for those who subscribe online and pay through digital mode.

Since the government is expected to honour its obligations, you will almost certainly receive your money on maturity day (after 8 years that is).

Performance of gold:

Over the past 15 years, the price of Gold has increased by 278%, roughly the same as the 30 years. Over the same period, the Dow Jones Industrial Average increased by 173%, significantly lower than the 30-year returns.

In 1979. gold prices rallied a whopping 120 %. The next year, it rallied some more — 29%. Unfortunately, things took a rather ugly soon after. In 1981, gold lost 32%, and it never really recovered after that. Not until 2006, when priced finally hit the $594 mark — the same price it was trading at, back in 1980. Later gold price surged like anything.

If you are an equity investor then you might be interested in the below numbers.

If an investor had made a lumpsum investment of Rs 1 lakh in Sensex on January 1, 2010, the returns would now amount to Rs 2,30,918 . And, if an investor had invested Rs 1 lakh in gold on January 1, 2010, total returns now would be Rs 2,40,000.

Other uses:

SGBs can be also used as collateral to raise a loan, especially if you hold them in Demat form. The loan-to-value (LTV) ratio given is equal to ordinary gold loans. Compared to loans against shares or equity mutual funds, the LTV for SGB backed loans is higher. loan against SGBs is secured, the investor can raise funds at 200 to 300 basis points lower interest rate compared to that payable on a personal loan.

Despite the COVID-19 lockdown being extended to May 3, the Government of India has decided to go ahead with the issue of sovereign gold bonds (SGBs). And unlike previous years, it seems to be in hurry to raise funds through gold bonds.

The sovereign gold bonds will be sold through banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India, designated post offices and recognized stock exchanges like the NSE and BSE. The sovereign gold bond scheme was launched in November 2015 with an objective to reduce the demand for physical gold and shift a part of the domestic savings — used for the purchase of gold — into financial savings. There will be six tranches of the latest sovereign gold bond over the course of this year. The next one opens for subscription between May 11 and May 15.

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