RBI's first tranche of Sovereign Gold Bonds for FY22 open: Should you subscribe?

The RBI's first tranche of Sovereign Gold Bonds (SGBs) for FY 2021-22 is open. The issue price of the 8-year bond has been fixed at Rs 4,777 per gram of gold. Investors applying online and making the payment against the application through digital mode will get a discount of Rs 50 per gram of gold. Industry experts believe SGBs are an ideal investment option for conservative investors who want diversification in their portfolio.

Investors looking for investment in gold should invest in the GOI's gold bonds. It is a great instrument for investors who want conservative investment options. Big investors who want to stay invested in gold can also buy upto 4 kgs and retail can invest as small as 1 gm. As Sovereign gold bonds attract interest rate of 2.5 per cent, investors will get the benefit of increase in the price of gold.

Commodity experts are bullish on the gold prices amid rising coronavirus cases, rising inflationary expectations, growth of debt in economies, Middle East tensions, trade war between US and China and a few more reasons. Analysts at Motilal Oswal Investment Services see gold price at Rs 56,500 in a year's time. On MCX, the gold is priced at around Rs 48,300 for 10 grams. In August 2020, the yellow metal had peaked to the highs of Rs 56,200 per 10 grams.

Kshitij Purohit, Lead-Commodities & Currency at CapitalVia Global Research sees gold hitting the target price of Rs 51,700 in the coming month. "It is a good time for investors to hold gold for medium to long term," he says. Fund managers ask investors to increase their allocation to the metal in their investment portfolios.

"Investors may step in and increase their allocation to 10-15 per cent of their portfolio at these levels to benefit from the price appreciation that would probably follow as constructive macroeconomic fundamentals weigh in favour of gold," says Chirag Mehta, Senior Fund Manager-Alternative Investments, Quantum Mutual Fund.

The first tranche of Sovereign Gold Bond will remain open for subscription till Friday. Here are the issue details of the six tranches of SGBs in the current FY.

Sovereign gold bonds are sold through banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

TAXATION OF SGB

Interest earned on Sovereign Gold Bonds is taxable as per the applicable tax slab of the investors. However, any capital gains on the SGB at the end of the eight year tenure have been exempted from tax by the government. This special tax benefit makes these bonds more attractive and gives another reason to investors to switch from physical gold to non-physical form of the yellow metal.

Also read: Analysts see gold at Rs 56,500 in 12 months. Is it a good time to buy?

Also read: Sovereign Gold Bond opens as yellow metal price hits 8-month low: Should you subscribe?