The issue price for the next tranche of the Sovereign Gold Bond(SGB) Scheme 2022-23, is available for subscription for five days from March 6.
The price has been fixed at INR 5,611 per gram.
SGBs are issued by the RBI in different tranches during the financial year. These securities are made available via banks, brokers, post offices and online platforms.
How does the government arrive at this price?
The gold in this bond is sold on a per unit basis such that every unit derives its value from underlying one gram gold with 999 purity.
The cost is calculated by taking an average of closing prices of gold for the latest three working days preceding the subscription period.
How to buy SGBs?
Investors can either buy the bonds in physical, digital or dematerialized format. Once purchased physically, investors can get these bonds credited to their demat accounts by making a specific request for it.
RBI then processes the dematerialization at their end and until when, the bonds are held in RBIs books.
Dematerialization can also be done post allotment. Investors who are not buying directly from the RBI, can buy the units from the secondary market i.e., from stock exchanges.
Advantages Of Buying SGBs
The SGBs are a great alternative to purchasing physical gold and have specific benefits such as zero risk of handling physical gold, an assured interest rate on the issued price per annum, in this case, 2.50% per annum.
There is no applicable tax deducted at source on SGBs and they can be used as collateral for loans.
The bonds tenure is for eight years but one can redeem it after five years with a sovereign guarantee on the redeemed amount and interest.
Risks Involved
The only major risk is the fluctuation in gold prices, but this applies to any major investment and does not qualify as a specific risk for SGBs.
Every individual SGB purchase is restricted to a maximum of 4 kgs per financial year and in case of a trust, it is restricted to 20 kgs.
The only document mandatory for the purchase of SGBs is a PAN card without which no investment in these bonds is permitted.