Government-Run Gold Bond Scheme Open Till July 10. Should You Subscribe?

Sovereign Gold Bonds: The government-run Sovereign Gold Bond scheme 2020-21 opened for subscription for the fourth time this year on Monday. The gold bond scheme is open till July 10, and will next open for five days each in August and September. Wealth managers say gold bonds offer a good opportunity for investors to take positions in gold, which is likely to continue its upmove given the uncertainty around the COVID-19 pandemic. An issue price of Rs 4,852 per gram has been set for the fourth tranche of the gold bond scheme scheme, based on a simple average of rates of the past three sessions provided by Mumbai-based industry body India Bullion and Jewellers Association (IBJA).

Gold prices are likely to find support at higher levels, according to Joseph Thomas, head of research at Emkay Wealth Management. 

"Gold prices have been moving up in the international markets in the last one year in response to the uncertainties in economic growth faced by all the major economies of the world. This situation has been further compounded by the pandemic and the resultant lockdown to combat the same," he said.

"The uncertainties surrounding economic growth and employment continues to sweep all the major economies of the world as we are yet to contain the pandemic and clinical trials to find a resolution for the same are still on," added Mr Thomas. 

In the Sovereign Gold Bond programme, the Reserve Bank of India (RBI) issues bonds determined in multiples of the value of one gram of gold on behalf of Government of India. Just like the issue price, the return is also linked to the price of the yellow metal. In other words, investment as well as redemption is settled at prevailing market rates of the precious metal.

Additionally, the bond-holders earn interest at the rate of 2.5 per cent per annum on the gold bonds (payable semi-annually), which come with a maturity period of eight years.

Financial experts say accumulation of gold in small quantities is suitable for long-term investors.

"Sovereign gold bonds are one of the best investment options in gold for long-term investments... For those who have little or no exposure to gold, this can be a good opportunity to add gold to their portfolio," Rahul Agarwal, director at Delhi-based financial services firm Wealth Discovery, told NDTV. "Gold is currently in a secular bull trend which is expected to last for a good couple of years and there are ample reasons for this scenario to continue."

(Also Read: How To Invest In Sovereign Gold Bonds)

"A unique opportunity to invest in gold is presented by the Sovereign Gold Bonds... Astounding features make the SGBs a really unique avenue to invest for those who would like to invest for the longer term," said Mr Thomas.

How Much Gold To Have In Portfolio

Financial advisors often recommend keeping gold as 5-15 per cent of overall investments in one's portfolio.

"While in all standard asset allocation models, a 5 per cent allocation to gold as an asset class is suggested with the intention of providing stability to the portfolio and as a hedge against inflation, a higher allocation may be contemplated based on portfolio size and other portfolio peculiarities," said Mr Thomas of Emkay Wealth.

(Also Read: Physical Gold Vs ETF Vs Bonds - Which Route Is Best To Go Long On Precious Metal?)

"It is always advisable to have exposure to some amount of gold in an investment portfolio for hedging and diversification purposes and the lock-in period serves that purpose very well," said Mr Agarwal of Wealth Discovery.

(The SGB scheme 2020-21 first hit the markets in April 2020)