Should You Invest In SGB Scheme 2021-22 Series III That Opened Today?

Gold since ages is considered a good investment and its appeal as a safe haven increases in the current uncertain environment. Now even as we have repeatedly assessed and told why one should be investing in sovereign gold bond or SGBs, considering its various advantages, given in short here:

1. No other gold investment yield return of 2.5 percent annually as is the case with SGB
2. No purity, storage, theft related issues
3. Tax advantage as when the investment is held until maturity i.e. for 8 years, then no capital gains tax implication shall arise.

Here we look the investment option from 3 aspects i.e. the latest SGB issue price and the likely return one can get on SGB early redemption as well as gold prospects going forward, we will make an attempt to understand whether the latest SGB series III shall be a right buy for you:

1. Issue price for SGB Scheme 2021-22 series III:

The issue price for SGB Series III available from May 31 to June 4, 2021 is priced at Rs. 4889 per gm. On digital purchase, the SGB shall be available at a discount of Rs. 50 per gm i.e. Rs. 4839. So, considering the spot price of Rs. 48849 per 10 gm for Ahmedabad, gold bonds that are currently available is priced more or less at par with market rates. In fact, buyers who go for online purchase of SGB will be able to get a better price.

2. Better Returns From Safe Investment Form

For the SGB series launched for the first time with an issue price pegged at Rs. 2684 per unit, the RBI has decided the early redemption price of Rs. 4837 per unit. Notably while the maturity term of SGB is eight years, investors in the scheme can make a redemption after 5 years holding period on the interest payment date.

For the redemption price:

The redemption price is decided by the RBI on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.

So considering the huge gains of around 80% on the price value at which the SGB was issued then in 2015-16 and the price at which it can be redeemed now after 5 years holding period, it shall always be a safe bet in gold provided you have a longer term horizon of at least 5 years.

Further, this can be a safe bet if we consider returns from Nifty over the same time where the return turned out to be only some percentage higher at 13.5% in comparison to SGBs CAGR growth of 12.5%.

Note here we are just illustrating the above redemption examples to illustrate the price appreciation factor over the years.

3. Gold price prospects:

Gold's near to medium term outlook is positive as the various factors that influence gold's run up are in the bullion's favour such as softer dollar. Also, the recent crash in the cryptocurrency space also led to infusion of funds into gold. But as equities continue to be strong and are scaling fresh highs, investors' increasing risk-on sentiment may weigh on the gold price. For the week ahead, the factors that shall guide gold price trajectory include monetary policy decision by the RBI in its June 4 policy outcome, release of any stimulus measures by the US, Indian and other economies as also the uncertain nature of Covid 19 virus.

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