Buy Gold at 16% discount: Check Modi government's Sovereign Gold Bond scheme details

Sovereign Gold Bond (SGB) scheme: Want to make money by investing in Gold? Don't be surprised reading this. You can buy the metal at 14-16% discount by investing in the Sovereign Gold Bonds in the secondary market. The RBI-issued SGBs are currently trading at discounted prices as compared to the prevailing gold prices in the open market. SGBs are meant for those who want to make money by investing in gold. Though they have to do it differently, or in other words, not in terms of real, physical metal.

"SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold," says RBI on its official website. The RBI issues SGBs on behalf of the Government of India. Under the scheme, investors are required to pay the issue price in cash. The bonds are redeemed in cash on maturity. 

The SGB scheme was first announced by Finance Minister Arun Jaitley in the Union budget 2015-16 as a part of Prime Minister Narendra Modi-led Union government's efforts to reduce the demand for physical gold. The government had then said in an official release, "The scheme will help in reducing the demand for physical gold by shifting a part of the estimated 300 tons of physical bars and coins purchased every year for Investment into gold bonds. Since most of the demand for gold in India is met through imports, this scheme will, ultimately help in maintaining the country's Current Account Deficit within sustainable limits. 

Good time to invest in SGBs? 

Anuj Gupta, Deputy Vice President - Research (Commodities and Currencies), Angel Broking Limited, tells Zeebiz.com that the RBI has already launched "Tranch 7 with a 2.5% cashback as a guaranteed return." As compared to the Gold price, SGBs come at an initial discount of around 15-16%. 

In the wake of sliding rupee, investors interest in gold has increased.

Gupta says, "This is a good time to invest in gold in either form like physical, ETF, Bond etc. Investors can hold this (Gold) in the Demat account, gift to any person and this could also be used as an portfolio diversification." 

"A person should invest 10% to 20% of their portfolio in gold for diversification and as an investment in asset class. Initially, the discount is around 14 to 16%, which is attractive for investment with a guaranteed return of 2.5%," he adds.

Where to buy SGBs

Invest in SGBs only if you can hold till maturity.  One can buy SGBs through banks, Stock Holding Corporation of India Limited, designated post offices, recognised stock exchange like National Stock Exchange and the Bombay Stock Exchange. "The minimum permissible investment in SGBs is 1 gram of gold and further addon in multiples of gram(s) of gold with a unit of 1 gram. The maximum limit shall be 4 kg for individual, 4 kg for Hindu Undivided Family (HUF), 20 kg for a trust," Gupta says.  

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SGB risk?

Investors can lose money if the market price of gold declines. However, investors don't lose in terms of the units of gold which he has purchased. SGBs come as a better alternative to holding gold in the physical form by removing the risks and costs of storage. Moreover, RBI says, "The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc."