Gold duty slashed in Budget: Does buying Sovereign Gold Bonds make sense now?

Gold duty slashed in Budget: Does buying Sovereign Gold Bonds make sense now?

NEW DELHI: The series-XI of the sovereign gold bond (SGB) scheme 2020-21 opened for subscription on Monday, but buying the bond issue may not be a right decision after the government proposed to slash duty on gold, said market analysts.

Finance Minister Nirmala Sitharaman proposed to cut duty on gold and silver to 7.5 per cent from 12.5 per cent, meeting industry demand. This led to a sharp drop in gold futures prices that fell by nearly Rs 1,800 from day’s high to below Rs 48,000.

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“With cut in customs duty on gold, it makes no sense investing into the current Sovereign Gold Bond series unless allocation rate is taken down,” said Sandip Sabharwal, an independent market analyst. He added that the government’s move should also bring down the prices of old issues of the bond that are traded on exchanges.

Prospective bidders, who still intend to subscribe to the scheme, can bid for a minimum of 1 gram of gold at Rs 4,912 per gram. There will be a Rs 50 discount for prospective investors that will bid online. The issue closes on Friday, February 5. The Certificate of Bond(s) will be issued on February 9.

In case you wish to subscribe, you can do so via your bank. Besides, these bonds are also sold through Stock Holding Corporation of India Limited (SHCIL), designated post offices, National Stock Exchange of India and the BSE, either directly or through agents.

Investors would get a 2.50 per cent interest on the amount of initial investment, which will take effect from the date of its issue and will be payable every six months. Besides, they can also see capital gains at the time of redemption in case the price at the time of redemption is higher, said ICICI Bank.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The bonds are issued by the RBI on behalf of the government.

The tenor of the bond will be for a period of eight years with an exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates. Besides, bonds will be tradable on stock exchanges within a fortnight of the issuance.

Among the benefits of subscribing to SGB is attractive interest with asset appreciation opportunity, redemption being linked to gold price, elimination of risk and cost of storage, exemption from capital gains tax if held till maturity, and a hassle-free holding as it eliminates the storage cost of physical gold.

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