Analysts are upbeat on the prospects of gold prices in light of the current economic situation as Covid-19 impact continues to linger. A few, however, have expressed concerns over the lock-in period.
Here is all you need to know about the upcoming sixth tranche of SGB scheme:
- When does the issue open?
The SGB scheme 2020-21-Series VI will be open for subscription from August 31-September 4.
- What is the issue price?
The issue price for the sixth tranche of the Sovereign Gold Bond Scheme has been fixed at Rs 5,117 per gram, the RBI said in a statement on Friday. The issue price for the bonds (series V), which were open for subscription from August 3 to August 7, was Rs 5,334 per gram of gold.
The nominal value of the bond is based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period.
The government, in consultation with the RBI, has decided to offer a discount of Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
- Who can buy it?
The SGBs are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions.How much can one invest?The minimum permissible investment will be 1 gram of gold and the maximum limit of subscription shall be 4 kg for individual, 4 kg for HUF and 20 kg for trusts and similar entities per fiscal (April-March).
- Where can I buy it?
The gold bond will be sold by banks (except small finance banks and payment banks), Stock Holding Corporation of India (SHCIL), designated post offices and recognized` stock exchanges (NSE and BSE).
- What is the lock-in period?
SGBs come with a maturity period of eight years, with an exit option after the fifth year. If an investor is eyeing an exit before the lock-in period of 5 years, they can always get out of the bonds by selling it on stock exchanges. The exit option can be utilized on interest payment dates.
- How has the response been in recent times?
Indian households have subscribed to a record Rs 3,387 crore worth of sovereign gold bonds in the recently concluded fifth series for FY21. In volume terms, it adds up to 6.35 tonnes. This is by far the highest in value and volume in any series since SGBs were launched in 2015 as a means of cutting costly imports of the yellow metal. In the past five years, SGBs aggregating to 48.16 tonnes have been issued by the RBI on behalf of the government.
- Why are SGBs issued?
The SGB was launched in November 2015 to reduce the demand for physical gold, and shift a part of the domestic savings that were used for the purchase of yellow metal into financial savings.
- What are gold prices currently?
On MCX, October gold futures were currently quoting at Rs 51,399 per 10 gram. Gold prices have been very volatile since hitting record highs of Rs 56,191 on August 7.
- What is the outlook for gold prices?
The outlook for gold remains promising in light of the economic uncertainties due to the Covid-19 pandemic, and analysts are upbeat on the prospects of the yellow metal in the medium term.
“High liquidity, low interest rates, high fiscal deficits, and an expected rise in inflation lead to higher gold prices. So, all this works in favour of gold. The outlook for gold is promising for at least next 2 years,” said Kishor Narne, head of commodities and currencies at Motilal Oswal Commodities.
- Should I invest?
Analysts are upbeat on SGBs as an investment option, but some have expressed concerns over the lock-in period.
“Investing in gold has been a fruitful investment this year as rates have risen over 30 per cent despite the fall in gold prices in the last few weeks,” said Nish Bhatt, Founder & CEO, Millwood Kane International.
US Fed’s relaxed stance on inflation and an extended period of low rates act as a support to gold prices, Bhatt said.
“SGB is an effective way to invest in non-physical gold, wherein an investor does not have to worry about the storage of gold as it is in a Demat form and there are no local taxes that a buyer needs to pay if buying physical gold,” he added.
He also pointed out that the investment in SGB comes with an assured 2.5 per cent per annum interest payable to the investor and there is a discount of Rs 50/gm for online investment.
Some felt that while SGBs were lucrative, the long lock-in period was a deterrent.
“The problem is the lock-in period. It is difficult to have that long a view as gold is a tactical investment. The liquidity is an…