SGB 2022-23 Series II Subscription Period To End Soon: Should You Invest?

SGB or Sovereign Gold Bond 2022-23 Series II is open for subscription currently and the offer period shall end tomorrow i.e. August 26, 2022. Here are all the associated benefits of the instrument together with whether or not you should consider subscribing to the current SGB tranche.

Let us begin the topic with understanding the basics about Sovereign Gold Bonds:

Sovereign Gold Bonds in simple terms are government issued securities with denominations in grams of gold. In fact to encourage and channelize household savings into physical gold, the centre in 2015 launched the scheme. For SGBs you need to pay in cash (the issue price) and redeem the instrument on maturity in cash. Notably, there is attached a lock-in term with the instrument which is of 8 years. But pre-mature exit is available in the 5th, 6th and 7th year, to be exercised on the interest payment dates.

Issue price of the currently running SGB 2022-23 Series II: Based on the average of the previous three business days' closing prices, the issue price for the current SGB has been provided as Rs. 5197 per gm. Online investors in the SGB can get a rebate of Rs. 50 i.e. for them 1 SGB unit shall cost Rs. 5147 per gm.

Current gold rates in the retail market After inching to almost one-month low levels mirroring international trend, gold rates are seen climbing. In Delhi 24 carat gold today i.e. August 25 is priced at Rs. 51,980, while prices in Mumbai are at Rs. 51,820 per 10 gm

Unlike physical gold, SGBs bear interest rate at the rate of 2.5% per annum

Unlike physical gold which is non-interest yielding, investment in SGBs offer you a return of 2.5% per annum on the amount of initial investment and this gets credited to your account once every six months. Furthermore, last interest in respect of the SGB will be payable on maturity along with the principal.

Redemption at maturity attracts no capital gains tax

When an SGB is redeemed after the lock-in period of 8 years then there are no tax implications on the capital gains made. Nevertheless, in case early exit is exercised as per the available option then 20.8 percent long-term capital gains will be levied on the gains realised.

 

With SGBs there is no attached storage cost or issues concerning purity, making charges etc

These bonds are held in the RBI books or in demat form eliminating risk of loss of security that is otherwise there with physical gold. Also, the instrument is free from issues like making charges and purity in the case of gold in jewellery form.

SGBs can also be transferred or gifted to a relative/ friend

Also you can consider gifting the investment option provided that he or she meets the eligibility criteria. As for the eligibility criteria, RBI in its FAQs clarifies that "Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity".

SGBs can also be used as collateral for loans

Similar to other investment options such as physical gold, equity etc. you can keep the SGB as a collateral with a financing entity and secure loan.

The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Further granting of loan against SGBs would be subject to decision of the bank/financing agency, and cannot be inferred as a matter of right.

SGBs also available in the secondary market

SGBs can also be bought from the exchanges. Here all of the previous tranches with different maturities shall be available. Investors need to here wisely choose the SGB tranche i.e. available at a discount and not at a premium.

Should you invest in SGB 2022-23 Series II?

Sovereign gold bonds are undoubtedly a better mode of investment into gold but make sure you have a long term investment horizon as else there will be taxation implications on early redemption. For shorter time-frames of say less than 5 years one may consider investment into gold ETFs or gold mutual funds. Also, note while liquidity in SGBs is extended through the secondary market route, there these may be trading at below the fair market value.