SGB scheme 2021-22 sixth tranche: Sovereign gold bond issue opens on Monday; should you subscribe?

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NEW DELHI: The sixth tranche of the sovereign gold bond (SGB) scheme 2021-22 will open for subscription on Monday. This issue comes amidst range-bound trade in gold and is priced lower than the previous tranche.

Prospective bidders, who intend to subscribe to the scheme, can bid for a minimum of 1 gm of gold at Rs 4,732 per gram against Rs 4,790 per gram for the previous tranche. There will be a Rs 50 discount for prospective investors that will bid online. The issue closes on Friday, September 3. The Certificate of Bond(s) will be issued on September 7.

Investment in Sovereign Gold Bonds has picked up pace in recent few months. However, lack of clarity on how gold will move in the coming month may keep investors cautious. If prices drop, it will be better to subscribe at a later tranche.

“Gold prices have been trading sideways for the past few days. However, it has recovered much of its losses witnessed in August. Moving forward, gold prices will be guided by the impact of the Delta variant of Covid-19, the geo-political situation in Afghanistan, and most importantly how the Fed signals tapering and manage the rising inflation in the US,” Nish Bhatt, Founder & CEO, Millwood Kane International, which is an investment consulting firm.

In case you wish to subscribe, you can do so via your bank. Besides, these bonds are also sold through Stock Holding Corporation of India Limited (SHCIL), designated post offices, National Stock Exchange of India and BSE, either directly or through agents.

Investors would get a 2.50 per cent interest on the initial investment, which will take effect from the date of its issue and will be payable every six months. Besides, they can also see capital gains at the time of redemption, in case the price of gold at the time of redemption is higher.

According to the Indian Bullion and Jewellers Association, the highest purity gold traded at Rs 47,149 per 10 gram on Friday evening. The price data released by the Association forms the basis for prices of SGBs.

SGBs are government securities denominated in grams of gold. They 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. The bonds are issued by the RBI on behalf of the government.

The tenor of the bond will be for a period of eight years with exit option in the 5th, 6th and 7th year, to be exercised on the interest payment dates. Besides, bonds will be tradable on stock exchanges within a fortnight of the issuance. Though the liquidity is usually low on exchanges.

Among the benefits of subscribing to SGB is attractive interest with asset appreciation opportunity, redemption being linked to gold price, elimination of risk and cost of storage, exemption from capital gains tax if held till maturity and a hassle free holding as it eliminates the storage cost of physical gold.

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