Sovereign Gold Bond 2023–24 Series lll Opened for Subscription Today: Should You Invest?

Initiated in November 2015, the Sovereign Gold Bond (SGB) Scheme was introduced by the Indian government to offer investors an alternative to owning physical gold. Investors are obligated to make the payment of the issue price in cash, and upon maturity, the bonds will be redeemed in cash.

These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Indian government. They are issued as Government of India Stock under the Government Securities Act, 2006.

Series I of the Sovereign Gold Bonds (SGBs) 2023-24 accepted subscriptions from June 19 to 23, while Series II had its subscription window open from September 11 to 15. The latest SGB 2023-24 Series III is open for subscription from today, i.e. December 18 to December 22, 2023.

The issue price of the SGB 2023-24 Series III is fixed at Rs 6,199 per gram of gold. However, subscribers can avail of a discount of Rs 50 per gram if they apply SGBs online and make the payment through online modes. The present tranche of the Sovereign Gold Bond scheme has a settlement date of December 28, 2023.

These bonds are issued in denominations of one gram of gold and multiples thereof. The tenure of SGBs is eight years, but investors have the option for premature redemption after the fifth year from the investment date. Investors receive fixed compensation at a rate of 2.50 per cent per annum, paid semi-annually based on the nominal value.

The minimum investment in SGBs can start as low as one gram, with a maximum subscription limit of 4 kilograms for individuals and HUFs and 20 kilograms for trusts and similar entities designated by the government each fiscal year. In cases of joint holdings, the investment limit applies to the first holder only.

Sovereign Gold Bonds (SGBs) are open for purchase by resident individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions. However, NRIs and foreign institutions are not allowed ownership of these bonds.

Similar to investment in any financial instrument, compliance with Know Your Customer (KYC) norms is required, following the same procedures as those for the purchase of physical gold. Essential KYC documents such as Voter ID, Aadhaar card/PAN or TAN/Passport are necessary, and each application must include the 'PAN Number' issued by the Income Tax Department for individuals and other entities.

The sale of Sovereign Gold Bonds is facilitated through Scheduled commercial banks (excluding small finance banks, payment banks, and regional rural banks), Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, National Stock Exchange of India Limited, and Bombay Stock Exchange Limited.

The pricing of these bonds is established by taking the simple average of the closing prices of gold with 999 purity, as reported by the India Bullion and Jewellers Association (IBJA). This average is computed using the closing gold prices over the three working days leading up to the commencement of the subscription period.

Since they are paper-based instruments, SGBs mitigate the risk and expenses associated with physical storage. These bonds are either maintained in the records of the RBI or exist in a dematerialised (de-mat) form, eliminating the threat of loss or theft. Investors have the flexibility to convert their holdings into a dematerialised form.

While there is a potential for capital loss if the market price of the gold declines, investors do not incur losses in terms of the units of gold they initially paid for. SGBs exempt buyers from concerns such as making charges, GST, and gold purity, which are typically associated with the purchase of gold jewellery.

Should You Invest in Sovereign Gold Bond 2023-24 Series III?

Integrating gold into your investment portfolio has the potential to enhance its robustness and contribute to long-term stability. This ultimately strengthens the overall resilience of your portfolio.

In times of economic volatility and geopolitical instabilities, we tend to witness a downward trend in equity markets. However, gold typically demonstrates an inverse correlation with equities, providing a protective buffer for your portfolio during periods of uncertainty and market strain. So, amidst global economic challenges and geopolitical tensions, gold maintains its allure as a hedge against uncertainty.

Given gold's considerable long-term potential, it is advisable to consider this investment avenue if you have not already allocated a portion of your portfolio to it.

Nevertheless, even though gold provides stability, it is essential to consider any investment decision in the context of the overall portfolio and long-term financial objectives. Experts recommend an optimal portfolio allocation of 10-15% to gold, offering a safety net during periods of uncertainty.

Sovereign Gold Bonds (SGBs) can be a more cost-effective substitute for physical gold, as they avoid substantial making charges associated with buying and selling jewellery. Holding SGBs in paper form eliminates the challenges of maintenance and concerns about depreciation, offering a convenient and efficient investment option.

Furthermore, SGBs provide the opportunity to earn interest, distinguishing them from physical gold and making them more appealing to investors seeking assured income. Opting for SGBs is a superior choice to physically storing gold, eliminating storage-related risks and expenses. Investors are assured of the market value of gold at maturity and monthly interest.

The first series of the SGB, introduced in November 2015, has recently matured and yielded a Compound Annual Growth Rate (CAGR) of 12.28% over 8 years for individuals in the 30% tax bracket. These post-tax returns surpass various other investment alternatives, including bank fixed deposits and certain mutual funds. This emphasises the efficacy of SGBs as a robust investment, offering a safeguard against market volatility.

From a tax perspective, Sovereign Gold Bonds are relatively more tax-efficient compared to physical gold. Investors in SGBs also stand to gain from potential capital appreciation when the market price of gold rises. However, it's important to note that SGBs come with a lock-in period of 5 years, limiting immediate liquidity.

So, if you are looking to broaden the variety of assets in your portfolio with a low-risk investment avenue that also provides a fixed return, considering Sovereign Gold Bond Scheme 2023-2024 Series III is a prudent choice.

We are on Telegram! Join thousands of like-minded investors and our editors right now.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.