The Reserve Bank of India (RBI) has recently launched the SGB (sovereign gold bond) scheme of 2023-24, Series II. This latest series is open for subscription until September 15, 2023. These bonds are priced at Rs 5,923 per gram of gold, but an instant discount of Rs 50 per gram is offered to those who apply online and make payments through digital channels. Consequently, the effective price per gram of gold stands at Rs 5,873.
Gold has an enduring appeal, deeply rooted in tradition, culture, and history. However, at Value Research, we have consistently advised against considering gold as an investment . Nevertheless, if you are inclined to invest in gold, sovereign gold bonds might be your best choice.
We have received numerous queries from our readers concerning investments in these bonds. Here are the most frequently asked questions (FAQs):
Where can you purchase SGBs?
SGBs are traded in both primary and secondary markets. You can conveniently acquire them through RBI (via banks and post offices) or from exchanges such as NSE and BSE. RBI Retail Direct is also an option, enabling direct investment in government securities. Click here to learn more.
Should you go for new or existing SGBs?
One crucial consideration when looking at these SGBs for investment is whether to opt for newly issued SGBs or those already listed in the secondary market. Always compare the prices of newly issued SGBs with those of existing SGBs with approximately the same maturity period. It's possible that existing SGBs may be trading at a discount.
However, in the secondary market, it's essential to gauge liquidity if you do not intend to hold the bonds until maturity. Higher liquidity makes selling easier. On the other hand, if you plan to hold the bond until maturity, liquidity becomes less relevant. At maturity, the bond will be redeemed and paid by the Government of India. Additionally, the bond's tenor is eight years, with early redemption through the government possible after the fifth year, on coupon payment dates.
Here are a few bonds for comparison, all with nearly identical maturity periods.
SGB tranche details
| SGB tranches | Subscription period | Issue date | Issue price (Rs) | Years remaining (approx.) | Latest price (Rs) |
|---|---|---|---|---|---|
| 2023-2024 Series I | Jun 19-23, 2023 | 27/06/2023 | 5876 | 7.8 | 5875 |
| 2022-2023 Series IV | Mar 06-10, 2023 | 14/03/2023 | 5561 | 7.5 | 5916 |
| 2022-2023 Series III | Dec 19-23, 2022 | 27/12/2022 | 5359 | 7.3 | 5975 |
| 2022-2023 Series II | Aug 22-26,2022 | 30/08/2022 | 5147 | 7 | 5902 |
| 2022-2023 Series I | Jun 20-24, 2022 | 28/06/2022 | 5041 | 6.8 | 5860 |
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Issue price is adjusted for discount of Rs 50. Latest price as on Sept 12, 2023. |
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The table shows that there isn't a significant price difference for SGBs. While existing investors might consider selling their bonds in the secondary market at a premium and buying them at a lower price in the primary market, they should be cautious about potential capital gains taxes when selling in the secondary market.
What is taxation at maturity?
Regardless of whether you acquire an SGB in the primary or secondary market, capital gains upon maturity are exempt from taxation.
However, if you choose to sell the bonds within one year, any gains will be added to your annual income and taxed according to your applicable income tax slab. If you sell the SGB after one year, capital gains will be taxed at 20 per cent after accounting for indexation benefits.
Do SGBs enjoy indexation benefits?
Yes, indexation benefits are applicable to SGBs. Nonetheless, if your intention is to hold these bonds until maturity, the importance of indexation diminishes, as capital gains upon maturity are tax-exempt.
A lot of other queries that we have received are regarding the acquisition of SGBs through the stock exchange. Click here to read further.
Key takeaways
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If you are considering investing in gold, sovereign gold bonds are an excellent option compared to physical gold, gold ETFs and mutual funds.
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When purchasing from the secondary market, prioritise bonds with higher liquidity.
- Try to hold bonds until maturity to save on taxes.
Suggested read: How is the interest on SGBs paid?
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