Sovereign Gold Bond scheme Series X open tomorrow; should you subscribe?

The Reserve Bank of India (RBI) has set the price at Rs 5,109 per gram of gold. The latest tranche of the SGB Scheme – Series X can be subscribed till March 4.

The government will give a discount of Rs 50 per gram to the investors applying online and the payment against the application is made through digital mode.

“For such investors, the issue price of Gold Bond will be Rs 5,059 per gram of gold,” RBI said.

The central bank issues the bonds on behalf of the Government of India.

The majority of analysts are in favour of subscribing to the issue considering the war scare between Ukraine and Russia and rising inflation globally. The bullion is considered as a hedge against inflation.

Anuj Gupta, Vice President – Commodity and Currency Research, IIFL Securities, has suggested investors bid for the lastest tranche for the SGB scheme.

“SGB is a great opportunity to put your money in the yellow metal amid the rising geopolitical worries across the globe,” Gupta added. “The rising inflation will also support the bullion.”

The issue price for Series IX, which was open for subscription during January 10-14, was Rs 4,786 per gram of gold. The know-your-customer (KYC) norms are the same as that for the purchase of physical gold.

The bonds will be sold through banks Stock Holding Corporation of India (SHCIL), designated post offices, and recognized stock exchanges — National Stock Exchange (NSE) of India and BSE.

Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking said that SGBs are a lucrative option as they offer long-term investment in gold in a hassle-free manner.

“Considering the risk-off sentiments, geopolitical uncertainty and inflation worries across the globe, investment in gold bonds could be the right choice,” she said.

The price of a bond is fixed in Indian rupees on the basis of a simple average of the closing price of gold of 999 purity, published by the India Bullion and Jewellers Association for the last 3 working days of the week preceding the subscription period.

Launched in 2015, the scheme has an objective to reduce the demand for physical gold and shift a part of the domestic savings into financial savings while purchasing the yellow metal.

Kshitij Purohit, Lead – Currency & Commodities at CapitalVia Global Research said that gold must not be seen as a high return generating instrument, but rather as a portfolio diversifier.

Gold being a ‘safe-heaven’ asset plays a vital role in increasing its demand, as it protects our portfolio during times of extreme uncertainties, he added. “One must have a decent percentage of gold in his portfolio as it will hedge positions.”

The bonds are denominated in multiples of grams as one gram is fixed as the basic unit. The tenor of the bond will be for a period of 8 years with an exit option after the 5th year to be exercised on the next interest payment dates.

The minimum permissible investment is 1 gram of gold. The maximum limit of subscription is 4 kg for individuals, 4 kg for HUFs and 20 kg for trusts and similar entities per financial year (April-March).