The Reserve Bank of India (RBI) announced the Sovereign Gold Bond (SGB) Series III program for the financial year 2023-2024, scheduled to open on December 18 and close on December 22. This publication is driven by the notable rise in gold prices, surpassing 10 percent in 2023 and defying expectations despite a challenging environment of high interest rates.
The price of this issue will be announced soon by the Reserve Bank of India (RBI).
The valuation of these bonds is worked out by calculating the simple average of the closing price of gold of 999 purity, according to the India Bullion and Jewelers Association (IBJA).
This average is calculated using the closing gold prices for the three business days preceding the start of the subscription period.
“The nominal value of the bond based on the simple average of the closing prices (published by the IBJA) of 999 purity gold over the last three business days of the week preceding the subscription period, i.e. December 13, December 14 and December 15. , 2023 is shaping up to be ₹6,199 per gram of gold,” the RBI said in a December 15 notification.
What are Sovereign Gold Bonds (SGB)?
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 repayment at maturity.
Issued by the Reserve Bank of India on behalf of the Government of India, these bonds provide protection to investors by ensuring that they receive the prevailing market price of gold upon redemption. This feature guarantees the value of the amount of gold initially invested, making SGBs a more advantageous option than holding physical gold.
Who can invest in SMEs?
Persons classified as residents of 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 bonds gold sovereigns (SGB).
For individual investors who undergo a change in resident status from resident to non-resident, they are allowed to hold the SGB until its prepayment or maturity.
What interest rate will be paid?
Sovereign Gold Bonds (SGBs) offer a fixed interest rate of 2.50% per annum on the initial investment amount. Interest is credited semi-annually to the investor’s bank account and the final interest payment is made on maturity, along with the principal amount invested.
The minimum investment in SGBs is 1 gram, and these bonds are issued in denominations of 1 gram or multiples thereof. For individual investors, the maximum subscription limit is 4 kg per financial 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 financial year.
In the case of joint investments, the maximum ceiling applies to the first applicant. The annual investment limit encompasses bonds acquired both upon initial issuance by the government and those obtained on the secondary market. It is important to note that the investment limit excludes assets used as collateral by banks and other financial institutions.
What do analysts say?
“The upcoming SGB presents an attractive investment opportunity. With India remaining a global leader in gold consumption, these bonds offer investors a unique opportunity to diversify their portfolios and benefit from capital appreciation linked to gold prices, without the challenges of physical storage . Their history of stable and high returns positions them as an attractive choice for long-term wealth creation,” said Suresh Shukla, Chief Commercial Officer, SBI Securities.
While interest income is subject to tax in the hands of investors, capital appreciation at maturity remains tax-free.
“Over time, gold will generate returns that will likely exceed inflation by a reasonable amount. Sovereign gold bonds are one of the best ways to invest in gold today, if you intend to hold it till maturity,” said Harshad Chetanwala, co-founder of MyWealthGrowth.com.
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