Sovereign Gold Bond 2023-24 Series IV Opens for Subscription Today: Should You Invest?

Launched in November 2015, the Sovereign Gold Bond Scheme, popularly known as the SGB scheme, was introduced by the Indian government to provide investors with an option other than owning physical gold. Investors are required to pay the issue price in cash, and upon maturity, the bonds will be redeemed in cash.

These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Indian government. They are issued as Government of India Stock under the Government Securities Act, 2006.

In 2023, the first three tranches of the SGB scheme 2023-24 commenced, running from June 19 to June 23, September 11 to September 15, and December 18 to December 22, respectively.

The SGB issue price is calculated by averaging the closing prices of 999 purity gold, as reported by the India Bullion and Jewellers Association (IBJA), over the three working days of the week preceding the subscription period.

According to a notification from the RBI, "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. February 7-9, works out to be Rs 6,263."

These bonds are available in units of one gram of gold and multiples thereof. The maturity period of SGBs spans eight years, with investors having the option of premature redemption after the fifth year from the date of investment. Investors receive a fixed return at a rate of 2.50 per cent per annum, paid semi-annually based on the face value.

Investors can start with a minimum investment of one gram in SGBs, with a maximum subscription limit of 4 kilograms for individuals and Hindu Undivided Families (HUFs) and 20 kilograms for trusts and similar entities specified by the government each fiscal year. In cases of joint holdings, the investment limit applies to the primary holder only.

Similar to investing in any financial instrument, adherence to Know Your Customer (KYC) regulations is mandatory, following the same protocols as those for purchasing physical gold. Important KYC documents such as Voter ID, Aadhaar card/PAN or TAN/Passport are necessary, and each application must include the 'PAN Number' issued by the Income Tax Department for individuals and other entities.

Who is Eligible to Invest in SGBs?

Individual residents: Including both Indian citizens and Persons of Indian Origin (PIO) residing in the country.

Hindu Undivided Families (HUFs): Recognised as traditional family units under Hindu law.

Trusts: These include public and private trusts duly registered in India.

Universities: Including all universities acknowledged by the University Grants Commission (UGC).

Charitable institutions: Those registered under the Income Tax Act, 1961, and holding valid 80G registration.

Who is Not Eligible to Invest in SGBs?

Non-resident Indians (NRIs) and Foreign Institutional Investors (FIIs) are ineligible to invest, while minors can only invest through their guardians.

The sale of Sovereign Gold Bonds is facilitated through Scheduled commercial banks (excluding small finance banks, payment banks, and regional rural banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, National Stock Exchange of India Limited, and Bombay Stock Exchange Limited.

The Sovereign Gold Bonds have a duration of eight years, with the possibility of early redemption after the fifth year. Interest is provided at a fixed rate of 2.50% per annum and is subject to full taxation. However, gains accrued upon redemption are entirely tax-exempt. Regarding profits from the redemption of Sovereign Gold Bonds, they are completely tax-free in the investor's hands. This rule applies whether redemption occurs at the end of the initial eight-year tenure or through early redemption permitted after five years.

As paper-based assets, Sovereign Gold Bonds reduce the risks and costs linked with physical storage. These bonds are either kept in the records of the RBI or exist in dematerialised (de-mat) form, eliminating the risks of loss or theft. Investors have the option to convert their holdings into dematerialised form, providing flexibility.

Although there is a possibility of capital loss if the market price of gold declines, investors do not suffer losses in terms of the quantity of gold they initially purchased. SGBs alleviate concerns such as making charges, GST, and gold purity commonly associated with buying gold jewellery.

Should You Invest in Sovereign Gold Bond 2023-24 Series IV?

Making gold a part of your investment mix can bolster its resilience and contribute to long-term stability, enhancing the overall strength of your portfolio.

During periods of economic uncertainty and geopolitical tensions, equity markets often experience downturns. In contrast, gold typically exhibits an inverse correlation with equities, acting as a protective hedge for your portfolio amid uncertainty and market turmoil. Therefore, amidst global economic challenges and geopolitical tensions, gold remains an attractive hedge against uncertainty.

Historically, gold has delivered considerable returns to investors. Given its significant long-term potential, it's advisable to consider this investment avenue if you haven't already allocated a portion of your portfolio to gold.

However, while gold offers stability, assessing any investment decision within the broader context of your portfolio and long-term financial goals is essential. Experts recommend allocating 5-15% of your portfolio to gold, depending on your risk tolerance and investment horizon, providing a safety net during uncertain times.

Sovereign Gold Bonds (SGBs) can serve as a cost-effective alternative to physical gold, bypassing substantial making charges associated with buying and selling jewellery. Holding SGBs in paper form eliminates maintenance challenges and depreciation concerns, offering a convenient and efficient investment option.

Moreover, Sovereign Gold Bonds (SGBs) offer the opportunity to earn interest, setting them apart from physical gold and making them more appealing to investors seeking assured income. Opting for SGBs is preferable to physically storing gold, mitigating storage-related risks and expenses. Investors are guaranteed the market value of gold at maturity, along with monthly interest payments.

The first series of SGBs, introduced in November 2015, recently matured, delivering a Compound Annual Growth Rate (CAGR) of 12.28% over eight years for individuals in the 30% tax bracket. These post-tax returns outperform various other investment alternatives, including bank fixed deposits and certain mutual funds. This underscores the effectiveness of SGBs as a resilient investment, offering protection against market volatility.

From a tax standpoint, Sovereign Gold Bonds are relatively more tax-efficient than physical gold. Investors in SGBs also stand to benefit from potential capital appreciation when the market price of gold rises. However, it's important to note that SGBs come with a lock-in period of five years, limiting immediate liquidity.

Therefore, if you're seeking to diversify your portfolio with a low-risk investment option that also provides a fixed return, considering Sovereign Gold Bond Scheme 2023-2024 Series IV is a wise decision.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.