Sovereign gold bonds peaked in the years affected by COVID; the next tranche of SGBs opens on Monday

Investments in government gold bonds (SGBs) have risen sharply over the years affected by COVID as investors sought safer options amid stock market volatility in 2020-21 and 2021-22, accounting for nearly 75% of total sales of bonds from the very beginning of the scheme in November 2015

The next tranche of SGB is scheduled to be open for a five-day subscription, starting Monday. The issue price is fixed at 5091 Rs per gram of gold. This will be the first issue of the current budget.

The government, in consultation with the Reserve Bank of India, has offered a rebate of Rs 50 per gram less than the face value of those investors applying online, and payments against the app are made digitally.

A total of 38,693 rupees (90 tonnes of gold) has been raised through the scheme since its inception in November 2015, according to RBI.

In 2021-22 and 2020-21, the two financial years affected by COVID, investors bought the bonds for a total of Rs 29,040, or about 75 per cent of SGB’s total sales since launch.

The Reserve Bank issued 10 tranches of the SGB in 2021-22 for a total of Rs 12,991 (27 tonnes).

In the period 2020-2021, the central bank issued 12 SGB tranches totaling 16,049 kroner (32.35 tonnes).

A total of Rs 9,652.78 (30.98 tonnes) was raised at the end of fiscal 2019-2020 through the 37 tranche scheme since its inception in November 2015.

The first tranche of SGBs started in November 2015. Subsequently, two tranches were launched in January and March 2016.

Rishad Manekia, founder and MD, Kairos Capital, based in Mumbai, SEBI, an investment consulting firm, said SGB could be seen as a substitute for holding physical gold, plus it has a profitability component. Its advantage is that it is supported by the government and is an easy-to-store option.

“One thing to look out for in these instruments is the lack of liquidity and the lack of diversification. If you hold the bonds to maturity, then liquidity is not a problem. However, if you want to leave earlier, your options are much more limited, “he said.

SGB ​​is valid for a period of eight years with the possibility of early redemption after five years.

Deepak Jane, CEO, TaxManager.In, said that SGBs are one of the safest ways to invest, which not only gives rise to more expensive capital, but also gives interest payments along with a state guarantee.

“But if you’re looking for an aggressive return, then this is not the right investment for you. So according to the case? In your investment portfolio? SGB should not be more than 5% to 8% of the total investment,” he said.

With regard to the taxation of government gold bonds, Kunal Savani, a partner, Kiril Amarhand Mangaldas, said that the special tax regime provided for in the 1961 Income Tax Act on the taxation of government gold bonds (SGB) was intended to encourage and encourage investors to keep gold in non-physical form for a long time.

“Accordingly, only profits arising from the repurchase of SGBs after the expiry date (ie 8 years) are exempt from tax, while profits arising from early repurchases and remittances are retained in the tax network.” , he said.

Investors are compensated with a fixed interest rate of 2.50 percent per annum, payable every six months on the face value.

SGBs are sold through banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), certain postal services, National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE).

The SGB scheme was launched in November 2015 to reduce the demand for physical gold and to transfer some of the domestic savings used to buy gold into financial savings.

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