With Dhanteras just round the corner on November 10, 2023, many Indians are exploring options to buy gold. Recent returns according to data from the Reserve Bank of India (RBI) shows that sovereign gold bonds (SGBs) are an attractive investment avenue.
So, should you wait for another tranche of SGBs in the near future this year? We explore.
SGBs, introduced by the Government of India in 2015, offer a distinctive approach to investing in gold.
Instead of owning physical gold, SGBs allow investors to hold gold in a dematerialised form, thus eliminating concerns about storage and purity. These bonds offer an annual rate of interest of 2.50 per cent, credited semi-annually to the investor’s bank account, with the final interest payment made upon maturity. Investors can purchase SGBs in denominations ranging from 1 gram to a maximum of four kg.
Notably, no tax is imposed upon redemption after the maturity period, which makes them an attractive option for long-term investors.
The most-recent sovereign gold bond (SGB) subscription ran from September 11-15, 2023, with the settlement scheduled for September 20, 2023. While it’s unlikely that the government will announce another SGB issue before Dhanteras, historical data suggests a new release could be expected in December 2023.
For instance, in 2022, the government unveiled two series in June and August, followed by two more in December and March 2023, totalling four series during the year.
In 2021, RBI made two announcements with 10 SGB tranches. In 2020, there were two announcements with a total of 12 issues, while in 2019, 10 SGB issuances were made. This trend has been consistent in recent years, although the number of issuances has reduced compared to earlier years.
For investors who want to purchase SGBs before December, the only way is to buy earlier issues listed in the secondary market at market value.
Outlook Money collated data of performance of SGBs over their last 11 premature redemptions or maturities, as listed by RBI on its website. SGBs, as a category, have provided an annual return of approximately 17.35 per cent. Note that this is in addition to 2.5 per cent interest it provides half-yearly.
Among the standout performers are the SGBs from Series XIV of 2017-18 and Series III of 2017-18, delivering returns (appreciation) of 20.41 per cent and 21 per cent over their 5-year maturity period leading up to premature redemption. SGB 2016-I has also shown remarkable performance, offering a return of 18.37 per cent over its 7-year maturity until the premature redemption date on August 8, 2023. This shows competitive returns compared to other fixed-income investment options.
However, it should be noted that these remarkable returns is due to the consistent rise in the price of gold during this period, and there have been many years before that where SGBs did not yield double-digit returns.
As gold prices continue to exhibit an upward trend due to volatile market conditions and inverse relation to equity, SGBs remain a prudent choice for those seeking stable returns and a secure investment haven.