Investors in gold bond scheme should be happy today. These bonds earlier this week made their debut on stock exchanges.
The bonds were listed at a price of Rs 2,930 per gram on Monday. It ended the week at Rs 3,196 on Friday. Investors who had bought these bonds in the primary issue in November are sitting on 19 per cent gains.
Sovereign gold bonds provide investors a choice to diversify portfolio without the need to buy the metal in physical form.These bonds were issued at a price of Rs 2,684 per gram in November.
These bonds had a maturity period of eight years and carried an interest rate of 2.75 per cent. Before the maturity, investors however can buy or sell these bonds when they get listed on stock exchanges. So far, the government has issued three tranches of gold bonds.
The bonds issued in the previous two tranches are yet to get listed on the stock exchanges.
Experts have attributed the surge in bond prices to gains in physical gold prices and good demand for these bonds in secondary market.
Physical gold prices crossed Rs 30,000 mark per 10 grams, tracking an increase in global prices. Global gold prices are currently near a 2-year high amid fears over Brexit and a weak dollar.
In fact, gold bonds are trading at a premium to the current price of physical gold.
With a fixed interest of 2.75 per cent on the investment value, gold bonds are expected to command a premium over the spot gold price, say experts.
"Incorporating the interest rate that they offer, gold bonds are expected to trade at a premium to the current market price," said Chirag Mehta, senior fund manager for alternative investments at Quantum AMC.
National Stock Exchange, where the bonds started trading from Monday, said that the initial response to trading in gold bonds has been encouraging.
"The trading volumes have been fairly encouraging. We have traded about 361 grams on day one and 250-odd on the next two days. This product has tremendous potential and these are early days, we will see a much bigger market soon," said Huzan Mistry, strategic business head, currency & fixed income at National Stock Exchange, told NDTV Profit. (Watch)
The minimum investment size in the secondary market is 1 gram.
The tax treatment of gold bonds is the same as that of physical gold. If the investor sells the bonds after three years, the gains would be taxed at 20 per cent after indexation, Under indexation benefit, gains on an asset can be adjusted for the rise in price, hence reducing the tax outgo. If bonds are sold before three years, gains will be added to investors income and taxed as per slab. But if the investor holds the bonds till maturity, the gains are tax free.
Experts believe that for investors who want to invest in physical gold, these bonds could be a good investment option given the fixed interest component. But investors should keep a watch how liquid gold bonds remain on stock exchanges.
"From interest perspective, gold bonds are a good investment option. We have to wait and see over the next two-three months whether they are able to provide liquidity, thus an easier entry and exit option," said Mr Mehta.
Mr Mehta is bullish on gold over medium and long term.
"Gold prices rose after the Fed kept policy rates unchanged this week. The Fed's assessment of long-term interest rate has decreased which is positive for gold," he said.
"Markets are not anticipating rate hikes this year and if rate hike happens, there will be kneejerk reaction from gold prices," he added.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
