The Modi government has fixed the price for the Sovereign Gold Bond at Rs 5,177 per gram of gold (999 purity) ahead of Diwali. The Sovereign Gold Bond Scheme 2020-21 Series VIII will be opened for subscription from November 9 to 13. So if you are planning to invest in gold coins, bars or jewellery on the occasion of Dhanteras and Diwali, you should give a rethink and shouldn't miss a golden opportunity to earn some great returns by investing in the scheme.
The scheme was launched by the Modi government in 2015. The objective is to reduce the demand for physical gold.
A sovereign gold bond is denominated in grams of gold. Any Indian citizen can buy it in multiples of 1 gram, meaning the minimum investment is 1 gram. The government has capped the upper limit at 4 kg. It is issued by Reserve Bank India on behalf of the government. The bond is sold through banks except Small Finance Banks and Payment Banks, Stock Holding Corporation of India, designated post offices, and BSE and NSE. The government is offering a discount of Rs 50 per gram to investors buying online.
Sovereign Gold Bond Benefits
Investing in the bond will allow people to capture the price movement of gold and also a fixed interest just like fixed deposits. The gold bond attracts an interest rate of 2.50 per cent every year. Remember that this interest is over and above the gold price return, meaning you get incentives as well for investing in the bond.
Vastupal Ranka, Director, House of Ranka Jewellers, said that sovereign gold bonds are not a substitute for physical gold, but investing here is a wise decision. He said that sovereign gold is just a paper currency that is backed by the government.
He said that customers get extra returns. But in physical gold, "it is not accompanied by additional interest, and extra tax is levied, therefore, not offering any returns". When you buy physical gold (coins, bars or jewellery), you are also paying making charge which is not in the case of sovereign gold bonds.
Physical Gold vs Sovereign Gold Bond
The main difference is that physical gold has a usage value, whereas, sovereign gold bonds are for investment purposes and are risk-free.
"Yes, people can definitely invest in sovereign gold bonds. It is backed by the government, no tax on maturity, and no default on payment. Investors can benefit from the 2.5% rate of interest. It also offers value when appreciated," he said.
Saurabh Khandelwal, who owns Dhanvi Diamond, said that sovereign gold bond is "genuinely proved as a good substitute for physical gold". "The best part why people can invest here is that they get to earn extra 2.5 per cent. So it is optimum for those people who wish to buy gold coins and not gold jewellery. If your only purpose is investment and not fashion, you should go for this," he said.
The bond comes with a maturity period. As per the rule, the tenure of gold bonds is 8 years. However, it comes with an exit option after five years. The process to redeem is easy. The customer needs to inform the bank and the concerned bank will process the same. Additionally, investors are given the option to sell the bonds on stock exchanges anytime.
So, this Diwali if you find it difficult to buy physical gold, a sovereign gold bond is a superior alternative to invest in the yellow metal and get high returns.