Sovereign Gold Bonds issue to open on 20th June

For the first tranche of the Sovereign Gold Bonds issue for fiscal year FY23 the RBI has announced the dates. The first tranche will open for subscription on Monday 20th June and will close for subscription on 24th June; both days inclusive. The bonds will be issued by the RBI on behalf of the government of India. As of now the government has announced just the first two tranches for the Sovereign Gold Bond (SGB) issues and more details will announced going ahead. The second tranche will be open from 22nd August to 26th August 2022.

A quick background of Sovereign Gold Bonds

The idea was conceived as a means of reducing the hoarding of physical gold by allowing people to invest in gold via the demat mode. Sovereign gold bonds were first issued by the government in the year 2015 and it is linked to the underlying price of 24 carat gold. These bonds represent the debt of the government and is fully guaranteed by the government towards payment of interest and the repayment of the principal amount. Of course, the repayment of principle is guaranteed in terms of grams of gold with price market driven.
 

The first issue of SGBs was done by the government in the year 2015 and since then it has done a total 59 issues of sovereign gold bonds over the last 7 years. In terms of grams of gold sold, the government has till date sold 90,365 kilograms of gold via the SGB route. In the process, the government has raised a total sum of Rs38,693 crore via the issue of Sovereign Gold Bonds raised till date with the price varying from time to time based on the prevailing price of gold at the time of the issue. The benchmark is 24-carat gold.
 

Unique features of SGBs – Tranche 1 – FY23

There has hitherto been a good response to the sovereign gold bond scheme. Here are some of the highlights of the SGB Tranche 1 issue.

    a) The issue that opens on 20th June, will be available for subscription to individuals, HUFs, trusts, universities and charitable institutions. Non resident Indians (NRIs) are barred from investing in the sovereign gold bonds issue.

    b) The SGB will have a tenor of 8 years, but it will have an option of premature redemption after 5th year. The SGBs are also listed on the NSE and the BSE and can be traded in the secondary markets after completion of 6 months, but subject to liquidity.

    c) The maximum that an individual can invest in a single financial year is 4 KG of gold equivalent while the limit is 20 KG for trusts. However, a family of four can make 4 investments and invest up to 16 KG.

    d) The price of the SGB will be announced a day ahead of the issue opening and is normally the simple average of the closing price of gold of 999 purity, published by India Bullion and Jewellers Association Limited (IBJA) for last 3 working days of the prior week.

    e) To encourage people to subscribe via digital mode, the SGBs offer a discount of Rs50 per gram for investors who subscribe online and pay through digital mode. This will reduce the effective price for the investors.

    f) One of the most attractive features of the SGB is that it offers interest at the rate of 2.5% per annum, payable semi-annually on the nominal value of the bond. Interest get adjusted in the case of market purchase and sale of SGBs.

    g) Currently, Sovereign Gold Bonds are sold through scheduled commercial banks, SHCIL, CCIL, post offices and on the NSE and BSE platforms. However, payment banks and small finance banks are not permitted to sell sovereign gold bonds.
The SGB offers a good investment avenue to invest in non-physical gold. SGBs can be held as certificates or directly credited to the Demat Account. Above all, it offers diversification of the portfolio since gold normally tends to have a negative correlation with other asset classes.