The fourth and final tranche of SGB for the financial year 2022-23 (April-March) is open for subscription. The offer closes on Friday, 10 March.
The issue price is Rs 5,611/gm with a discount of Rs 50 for applications online.
The advantage of SGB over other forms of Gold is on multiple counts. Apart from capital appreciation, SGBs offer a 2.5% interest on the capital appreciation, Personal Finance expert Jitendra Solanki. There is no capital gains tax if one remains invested for 8 years, he added.
SGBs are highly liquid and are traded on the exchanges, Solanki further said. There is a sovereign guarantee and no danger of a default.
Moreover, there is no expense on managing it, ICICI Direct said.
So far, the Government of India through Reserve Bank of India (RBI) has issued 62 tranches and raised around Rs 43,000 crore, the research report said. “The popularity of Sovereign Gold Bond has gained significant prominence in the last few years as investors gained confidence on the ease of investing and additional interest which SGBs offer,” the report noted.
Tax Tips
Solanki’s advice to investors is to remain invested for 8 years to take benefits of capital gains tax exemption. Selling SGBs in the secondary market before maturity invites tax at the rate of 20% on capital gains arising on such transactions. The instrument gives indexation benefits to the buyers if the SGB is sold on or after three years and would also be subject to marginal tax rate if sold before three years.
Returns & Outlook
Indian gold prices have been more structural and stable in comparison to global gold price movement, which has been non-linear historically, ICICI Direct said. In the latter case, prices have remained in a range for multiple years and then delivered significant returns in the following years as can be seen in the below mentioned chart.
Annualised long term returns in India since the 1970s in USD terms are 3.3% while remaining at 8.8% in rupee terms during similar periods, the report said. The difference in return is owing to rupee depreciation against the US dollar, which is at around 4.0% during the same period in the last 40-50 years, the report explains. Even the inflation differential between the US and India is around similar levels of around 4.0%, it said.
Mettle of Gold
Given the economic and geo-political uncertainties, Central Banks across the globe have been looking to diversify their holdings by adding gold to their corpus. Central banks accumulated over 1136 tonnes in gold purchases in CY22, highest ever in any calendar year. Majority of the buying in CY22 came in Q3 and Q4 indicating recent buying interest. US treasuries are believed to be a larger proportion of their holdings, the report said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)