Sovereign Gold Bond Tranche 5 - Review

Published on Sunday, August 2, 2020 by Chittorgarh.com Team

The Union government has introduced a sovereign gold bond scheme in April 2020, largely to reduce the country's dependency on imports and channeling unproductive household gold to productive use. Unlike exchange traded funds (ETFs), these bonds won't be backed by gold, but a sovereign guarantee. Indian entities, like individuals, trusts, educational and charitable institutions and HUFs can invest in the sovereign gold bond.

Having gold in one's portfolio will help in diversifying risks, particularly if one has a long-term investment horizon. But at the same time, one should not allocate more than 5-10% of total portfolio in gold. And if investment is what one is interested in, owning gold in paper form will serve purpose in the most cost effective way.

Sovereign Gold Bond (SGB) is 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 Bond is issued by Reserve Bank on behalf of Government of India.

For those who are looking for investment in gold, sovereign gold bonds are considered one of the best options as investors can not only gain from the appreciation in prices of the precious metal but also earn an interest at the rate of 2.5% on the initial investment amount during the entire tenure.

Having successfully launched four tranches so far, we have the Tranche 5 of SGB that opens for subscription on Aug 03, 2020 and will close on Aug 07, 2020 . Today everyone is wondering over surge in Indices, Gold prices and cases of COVID-19 pandemic. Against the ongoing price of Gold per gram of Rs. 5400 and around, SGB-V is being issued at a price of Rs. 5334 per gram. Investors applying online will get discount of Rs. 50 per gram , thus effective cost will be Rs. 5284 per gram. An Individual investor can bid for minimum of 1 gram and in multiple thereon, thereafter. The maximum limit of subscription shall be 4 kgs for individuals and HUFs. Trusts and other similar entities can bid up to a maximum of 20 kgs.

Allotments of SGB-V bonds will be done on Aug 11, 2020 in demat accounts of the successful applicants. This will be listed on BSE and NSE. This offering comes at a time when gold price has surged about 37% this year and prices have inched closer to around Rs. 54,000 per 10 gram.

The tenor of the gold bonds is eight years with exit option after fifth year. The redemption price is based on the then prevailing price of gold - simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. One can sell these bonds before 5 years on the exchanges in case of need of funds. For this demat holding is compulsory.

While this offer carries annual interest rate of 2.50% to investors. Capital gains, if any, at maturity is tax-free. This is an exclusive benefit available on gold bonds. All previous schemes (Tranche I to IV) are quoting at premiums to its offer price. There will be a sixth tranche offer next month, which please note.

Sovereign Gold Bond Tranche-V gets overwhelming response, gets application worth Rs 3387 cr.

Update: 19th Aug 2020

Reserve Bank of India (RBI) is having mandate for issuance of Sovereign Gold Bonds (SGB). It started this scheme in 2015 and since then, till date over 48 tons of Gold Bonds are sold. In fact, RBI announced issuance of six tranches of SGB in the first half of FY 20-21.

Since April 2020, till 7^th of August 2020 we have seen total five tranches and with around 17.18 tons Gold Bonds totaling to Rs 8499 cr. are sold so far. Its sixth tranche is scheduled for opening on August 31, 2020 and closing on September 04, 2020. Its issue price will be announced shortly.

For Tranche-V the issue opened on August 03, 2020 and was closed on August 07, 2020. Its allotment was done on August 11, 2020 and the credits to investors' demat account reflected on August 17, 2020. For Tranche-V SGB issue RBI received application worth Rs 3387 crore that turned the historic fund mobilization ever since this scheme is launched. This issue was priced at Rs 5334 per gram unit and for online applicants, it offered discount of Rs 50 per gram and thus effective price for online applicant was at Rs 5284 per gram.

As per RBI data, five tranches of SGB issued so far with its pricing and the amount collected are as under:

According to bullion market analysts, while Gold priced have marked historic high in recent times and currently witnessing high volatility has impacted gold imports. According to World Gold Council, for the quarter ended June 30, 2020, India imported only 14.1 tons of Gold indicating fall of 95% on a year-on-year basis. Due to ongoing pandemic, investors rather trusted yellow metal as the safe heaven for their investment and that has been reflected in response to SGB Tranche-V. As known, this last tranche pricing was around historic high price and many analysts hinted at avoiding investment, but it got overwhelming response.

Based on this reports, now all are eyeing on the pricing of tranche-VI issue that is opening by the month end. If world gold analysts are to be believed, surge in Gold price likely to continue and may see new records going forward.