The Reserve Bank of India (RBI) announced the Sovereign Gold Bond (SGB) Scheme Series III for the fiscal year 2023-2024, which is scheduled to open on December 18 and will close on December 22. This release is prompted by the noteworthy surge in gold prices, surpassing a 10 percent increase in 2023, and defying expectations despite a challenging high-interest rate environment.
The price for this issue will be announced by the Reserve Bank of India (RBI) soon.
The valuation of these bonds is established by calculating the straightforward average of the closing price of gold with 999 purity, as per India Bullion and Jewellers Association (IBJA).
This average is calculated using the closing prices of gold for the three working days prior to the start of the subscription period.
“The nominal value of the bond based on the simple average of closing price (published by the IBJA) for gold of 999 purity of the last three working days of the week preceding the subscription period, i.e. December 13, December 14, and December 15, 2023 works out to be ₹6,199 per gram of gold,” RBI said in a notification on December 15.
What are Sovereign Gold Bonds (SGBs)?
Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold, providing a viable alternative to owning physical gold. Investors are required to pay the issue price in cash and receive a cash redemption upon maturity.
Issued by the Reserve Bank of India on behalf of the Government of India, these bonds offer investor protection by ensuring they receive the prevailing market price of gold upon redemption. This feature guarantees the value of the initially invested quantity of gold, making SGBs a more favorable option compared to holding physical gold.
Who all can invest in SGBs?
Individuals categorized as residents in India under the Foreign Exchange Management Act, 1999, such as individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions, are eligible to invest in Sovereign Gold Bonds (SGBs).
For individual investors who undergo a change in residential status from resident to non-resident, they are permitted to retain the SGB until its early redemption or maturity.
How much interest rate will be paid?
Sovereign Gold Bonds (SGBs) offer a fixed interest rate of 2.50% per annum on the initial investment amount. The interest is credited semi-annually to the investor’s bank account, and the final interest payment is made upon maturity, along with the principal amount invested.
The minimum investment in SGBs is 1 gram, and these bonds are issued in denominations of one gram or multiples thereof. For individual investors, the maximum subscription limit is 4 kg per fiscal year (April-March). This same limit applies to Hindu Undivided Family (HUF) investors. However, trusts and similar entities, as notified by the government, have a higher maximum limit of 20 kg per fiscal year.
In the case of joint investments, the maximum limit applies to the first applicant. The annual investment limit encompasses bonds acquired both during the initial issuance by the government and those obtained from the secondary market. It’s important to note that the investment limit excludes holdings used as collateral by banks and other financial institutions.
What do analysts say?
“The upcoming SGB presents a compelling investment opportunity. As India remains a global leader in gold consumption, these bonds offer investors a unique avenue to diversify portfolios and benefit from capital appreciation linked to gold prices, without the challenges of physical storage. The historical track record of steady and high returns positions them as an attractive choice for long-term wealth creation,” said Suresh Shukla, Chief Business Officer, SBI Securities.
While the interest income is subject to taxation in the hands of investors, the capital appreciation upon maturity remains exempt from taxes.
“Over a period of time, gold is going to generate returns, which will probably beat inflation in a reasonable manner. Sovereign gold bonds are one of the best ways to invest in gold at the current time, if you go with the intention of holding it till maturity,” said Harshad Chetanwala, Co-founder, MyWealthGrowth.com.
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