Get More from Your Gold
Benefits of Switching to Sovereign Gold Bonds
India is the world’s second-largest consumer of gold, after China, and Indian households hold about 27,000 tonnes. While various asset classes are available for investing, including cryptocurrencies, the love for gold has not dimmed among Indians.
Gold has been considered a store of value for centuries and remains the chosen safe haven during times of economic turmoil.
How is the demand for gold in India met?
India has no large gold mines. According to data published by the Ministry of Mines, India’s current defined gold reserves are a little over 70 tonnes, with 80% of the reserves mostly in Karnataka.
Most of the demand for gold in India is met through imports. Most of the imports by India are from Switzerland, followed by Dubai.
In 2022, India imported 706 tonnes for $36.6 billion. For a capital-scarce country like India, spending this money on a so-called unproductive asset makes no economic sense.
Why are gold imports a headache for the govt?
As most of the gold is imported, it must be paid in dollars, which widens the country’s Current Account Deficit of the country.
A current account deficit occurs when the total imports exceed the value of total exports.
This causes the rupee to weaken and makes the RBI sell dollars from its foreign exchange reserves to stabilize the rupee and tend to exert pressure on interest rates if the rupee continues to weaken.
Earn money on gold
The Indian government launched the Sovereign Gold Bonds scheme in 2015 to provide an alternative to physical gold investment.
The bonds are issued by the Reserve Bank of India on behalf of the government and are aimed at mobilizing the idle gold held by households and institutions in the country.
Indians buy an estimated 300 tonnes of gold, on average, each year.
The scheme will reduce the demand for physical gold by making gold bond purchases remunerative.
It is a win-win for the government and investors
The Sovereign Gold Bonds are denominated in grams of gold, and the risk of gold price changes will be borne by the Gold Reserve Fund, which has been created from the savings that the government makes in its borrowing costs.
The government gets to use the fund at 2.5% annually, which is the interest paid to the bondholder.
What’s in it for the sovereign gold bond buyer?
The quantity of gold denominated in the bond is protected over the eight-year tenure of the bond, and the holder receives the prevalent market price at the time of redemption or premature redemption, which is permitted from the fifth year at the time of the interest payment.
More importantly, you will receive 2.5% interest on the value of the bonds.
The bonds offer a superior alternative to holding gold in physical form by eliminating the risks and storage costs. Also, the investors are assured of the market price and timely payment of interest.
Moreover, while buying the bonds, there are no issues like making charges and concern over purity if one were to buy gold in the form of jewellery.
Investing in Sovereign Gold Bonds is an environmentally friendly option for buying gold as it eliminates the need for physical gold mining. This reduces the impact of gold mining on the environment and helps promote sustainable investing.
How are the bonds issued, and what is the minimum investment?
The Sovereign Gold Bonds are issued in denominations of one gram of gold, which is the minimum investment, and multiples thereof.
The maximum limit is 4 kg for individuals, 4 kg for Hindu Undivided Family and 20 kg for trusts and some government-notified entities. In the case of joint holding, the limit applies to the first applicant.
What are the issue price and redemption price of the Sovereign Gold Bond?
The bond’s face value, or issue price, will be fixed on the basis of the simple average of the closing price of gold of 999 purity, computed by the India Bullion and Jewellers Association Limited. The price used for computation would of the last three days of the week preceding the subscription period.
The redemption price shall be based on a simple average of the closing price of gold of the previous three days from the date of repayment, published by the India Bullion and Jewellers Association Limited.
The interest payment and redemption proceeds will be credited to the bank account mentioned when buying the bond.
Where can I buy the Sovereign Gold Bonds?
The Reserve Bank of India has announced the sale of the 2022-23 Series IV bonds from March 6-10, 2023, which will be issued on March 14, 2023.
These bonds can be purchased from brokers registered with the National Stock Exchange and BSE, designated banks, designated post offices, the Stock Holding Corporation of India Ltd and the Clearing Corporation of India Ltd.
The earlier series of Sovereign Gold Bonds are traded on the NSE and BSE and can be purchased from brokers registered with these stock exchanges.