While physical gold has always been a favourite among Indians, the Sovereign Gold Bonds (SGBs) scheme launched by the Reserve Bank of India in 2015 has also attracted its fair share of investors. Since the window for investments in SGB Scheme 2023-24 Series I closed on June 23, 2023, investors may look at the secondary market to buy the bonds. The issue was priced at Rs 5,926 per gm in the primary market. But should one buy SGBs from the secondary market?
As it stands, investment in digital gold provides high liquidity, eliminates storage costs, and is easier to sell than physical gold. Another factor is that gold prices have gained 18 per cent in FY23, whereas SGB has posted double-digit gains (average annualised growth of 11 per cent) since its inception in 2015. In comparison, the benchmark Sensex gained 1.78 per cent to close at 58,992, while the Nifty 50 closed 1.63 per cent higher at 17,360 in FY23.
Buying SGBs is also advantageous as capital gains at maturity are tax free, plus bondholders accrue a 2.5 per cent annual interest on them, although there is an initial lock-in period of five years, and the maturity period is eight years. But buying from the secondary market overcomes the disadvantage of the lock-in period.
Currently, 63 series of SGBs are listed in the secondary market. “Growing awareness and interest in SGBs has reduced the arbitrage between the primary and secondary market prices. Purchasing from the secondary market now only makes sense if an investor wants a shorter maturity duration,” says Ajinkya Kulkarni, CEO and Co-founder of online bond-trading platform Wint Wealth. “The investor should also be mindful that the daily volumes on the secondary market are still not more than Rs 5-10 crore. Thus, it may take a while to sell the units.”
However, as the government brings in more tranches, the availability of SGBs will increase in the secondary market, thereby improving the liquidity and pricing in the market. Col. Sanjeev Govila (Retd), CEO of financial planning firm Hum Fauji Initiatives, says, “Currently, there could be a serious issue of availability as nobody sells when gold rates are down, but buyers abound when rates are up. So, buying from the secondary market as an opportunistic purchase is advisable but linking it to a financial goal or as a diversification or asset allocation play is not advisable.”
While returns for SGBs depend on gold prices prevalent on maturity, or on premature exit if held in demat form, one must know that SGBs are for long-term investors.
@imNavneetDubey