Tuesday, 19 January 2016

Sovereign Gold Bonds in India for Investors - Chennai

The government on Monday launched the second tranche of sovereign gold bonds for sale/subscription. The issue will remain open till January 22. The bonds will be issued to the applicants on February 8, 2016.

This time the Reserve Bank of India has fixed the issue price at Rs 2,600 per gram. The issue price of these bonds is calculated by averaging the previous week's closing price of gold of 999 purity. The first issue was priced at Rs 2,684 per unit.

These bonds offer an interest of 2.75 per cent per annum on the initial value of investment. Under the scheme, one can buy a minimum 2 units (1 unit equals to 1 gram of gold) while the maximum investment can go up to 500 grams.

Gold bond schemes provide an alternative investment option to physical gold and offer an additional interest unlike other schemes such as gold exchange traded funds (ETFs).

"It is definitely one of the options to consider for part of your investment in gold, because of the additional interest it offers... There are concerns about liquidity. ETFs are highly liquid compared to these bonds. Also, if the price of gold goes up the percentage yield will go down as it is offered on the initial value of investments and not on the prevailing price of gold," says Anil Rego, CEO of Right Horizons, a wealth management firm.

These bonds have a maturity of 8 years with an exit option from fifth year. One can redeem the bond on the prevailing market price in multiples of one gram. These bonds have to be listed on the exchange therefore one can also exit before maturity by selling them in secondary market provided the liquidity is there.

Chirag Mehta, senior fund manager, alternative investments, Quantum Mutual Fund says "People invest in gold as lender of last resort, so if one is not bothered about the liquidity and is ok with the interest rate offered then one can look at investing in these bonds."

The interest earned on these bonds will be taxable as per the slab of the individual and capital gains arising (if one exits through exchange) will be taxed as per the tax slab before 3 years and at the rate of 20 per cent post indexation after 3 years.

One can apply for these sovereign gold bonds at post offices, banks and Stock Holding Corporation of India.

The first gold bond issue received 63,000 applications for 917 kg amounting to Rs 246 crore.