Sovereign Gold Bond Scheme opens today: Should you subscribe? Check what commodities' experts opine

The seventh tranche of sovereign gold bond scheme 2021-22 will open for subscription today (Monday, October 25, 2021). The government-run gold bond scheme will remain open for a period of 5 days. The issue will close on October 25.  The government has fixed issue price of Rs Rs 4,765 per unit (1 gram) for the seventh tranche of the scheme. The date of issuance of the seventh tranche of sovereign gold bond has been fixed as November 2,2021.  

What is SGB?  
SGBs are government securities denominated in grams of gold and 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 Bond is issued by the Reserve Bank on behalf of Government of India.
Meanwhile, as the scheme opens for subscription today, there are many who would be wondering if they should apply for this tranche amid volatility in the precious metal or not. Well, the experts from commodities section are of the view that gold must be bought at current levels, as the prices of the yellow metal has come down and this offers an opportunity to accumulate gold. As the SGB is a government-backed instrument, they feel SGB offers many benefits, including annual interest, tax benefits and easy-to-store option. They feel that SGBs are good option, especially when one has long-term objective as it also acts as portfolio diversifier and provides cushion against uncertainties in the market.  

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Should you subscribe SGBs? Experts' take:  

Chirag Mehta - Senior Fund Manager - Alternative Investments, Quantum AMC

Gold’s bread and butter has been the ultra-accommodative monetary stance of global central banks and that is starting to normalize as economies open up and the pandemic fades. But over the next couple of quarters as global supply chains disrupted by the pandemic try to keep up with rising demand, rising inflation could be a drag on growth. Thus, gold’s utility as a portfolio risk diversifier and an asset that tends to keep up with inflation could come to the fore. Consumer demand is also coming back as the Indian economy continues to recover, supporting gold prices.  

Gold prices are down which is an opportunity for investors to increase their allocation at lower prices.  

Sovereign Gold bonds pay an annual interest and have tax benefits. But they suffer from low liquidity (8-year tenure) with an exit option from 5th year onwards only. Also, they are tradable on exchanges, but only among their tranches of issuance, thus limiting liquidity and trading at a discount.  

Gold ETFs, on the other hand, are extremely liquid. ETF units are traded on the exchange at the prevailing market price of physical gold, thus investors can buy or sell holdings close to the market price, without paying a premium on purchase or selling at a discount.  

Gold’s value is derived from the fact that unlike equities and debt, it is a hard asset and no one's liability. SGBs are not backed by gold but are backed by a government guarantee. Many investors want the security of gold backing instead. So, it boils down to individual investors' philosophy and comfort level.

Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities: -

Sovereign gold bonds are good if someone has a long-term time horizon. With so much uncertainties still in the global economy, one has to diversify his/her portfolio. Gold acts as a good diversifier in times of uncertainties. So, one should not time the market and must stay invested in gold.
Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd

SGB is an instrument issued and backed by Government of India hence, investors should subscribe for the upcoming issue. without any hassle.
History and significance:  

"The government started this scheme in November 2015 with an objective to reduce the demand for physical gold and shift a part of the domestic savings. Sovereign Gold Bond is issued by the Reserve Bank of India on behalf of the Government of India. Investor can buy this sovereign gold bonds physically or in the demat. After listing of this bond, the investors can also buy it from both the exchanges—NSE and BSE as all the bonds are tradable on both the exchanges. Investors will be rewarded at a fixed rate of 2.50% per year, which is payable semi-annually on the nominal value. Also, Investor can apply online at one of the mentioned scheduled commercial banks' websites to avail Rs 50 discount," informs Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research.

Sovereign Gold Bond Scheme 7th tranche key details:
 

*Open date: October 25, 2021
*Closing date: October 29, 2021
*Bond Issuance date: November 2, 2021
*Discount: Rs50 per gram on applying online
*Tenure: 8 years, with exit option after 5th year
*Minimum permissible limit: 1 gm gold
*Maximum permissible limit:  4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)