Sovereign Gold Bond Tranche 5 - Review

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

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Sovereign Gold Bond Tranche 5 - Review

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.

Tax on Sovereign Gold Bond

The taxation of gold mutual funds and gold ETFs at the time of redemption is the same as selling gold jewelry. But taxation of returns from Sovereign Gold Bond is different.

Physical Gold, Gold ETF & Gold Fund Sovereign Gold Bond

Short term (Below 3 Years)

Long term (Above 3 Years<)

Tax on Interest income

Capital Gain Tax

As per Investors Tax
Bracket

20%+ cess (with Indexation benefit)

As per Investors' Tax
Bracket

  1. LTCG tax of 20% along with indexation benefit when bond sold after minimum lock-in period of 5 years
  2. Capital Gain at the time of maturity (8 Years) is exempt.

Comparison of Gold Related Investments

Particulars

Sovereign Gold Bonds

Physical Gold

Gold ETF

Returns/ Earnings

More than actual return on physical gold

Lower than real return on gold due to making charges

Less than actual return on physical gold, since annual expense deducted

Sovereign guarantee

Yes

NA

No

Interest on the investment

Yes

No

No (No dividend option provided on Gold ETF)

Capital Appreciation/depreciation

Yes

Yes

Yes

Annual fund management fees

No

No

Yes

Brokers charge on buying

No

No

Yes

Exit / redemption option

Only from 5th year

Any time exit

Any time exit

Tradability

Yes

Yes

Yes

Liquidity

Limited

Highly liquid

Highly liquid

Storage/Insurance charges

No

Yes

No

Quality check required

No

Yes

No

Sovereign Gold Bond Public Issue History

S. No. Tranche Date of Subscription Date of Issuance

1.

2020-21 Series I

April 20-24, 2020

April 28, 2020

2.

2020-21 Series II

May 11-15, 2020

May 19, 2020

3.

2020-21 Series III

June 08-12, 2020

June 16, 2020

4.

2020-21 Series IV

July 06-10, 2020

July 14, 2020

5.

2020-21 Series V

August 03-07, 2020

August 11, 2020

6.

2020-21 Series VI

Aug.31-Sept.04, 2020

September 08, 2020


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 7th 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:

Sovereign Gold Bond Pricing

MonthPrice per 10 gramsNo. of Units appliedAmount (Cr.)
April 2020Rs 46390.001773 kgs.Rs 822.00
May 2020Rs 45900.002544 kgs.Rs 1168.00
June 2020Rs 46770.002388 kgs.Rs 1117.00
July 2020Rs 48520.004131 kgs.Rs 2004.00
August 2020Rs 53340.006350 kgs.Rs 3387.00
Total17185 kgs.Rs 8499.00

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.



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9 Comments

Kam AJ
9. Kam AJ  Oct 7, 2020 16:43 I Like It. | Report Abuse Reply 0
I had the same trouble with hdfcsec. After there response i can see it under
Portfolio -> Demat reconciliation
Ranajoy
9.1. Ranajoy  Nov 19, 2020 11:08 I Like It. | Report Abuse 0
How many days did it take for them to reflect ?
Pavan
8. Pavan  Aug 13, 2020 13:34 I Like It. | Report Abuse Reply 0
When can bonds reflect in demat account ?
Ranajoy
8.1. Ranajoy  Nov 19, 2020 11:06 I Like It. | Report Abuse 0
Any idea when the bonds reflect in demat ?

I applied through HDFC Netbanking and have HDFC Demat
Amit Raj
7. Amit Raj  Aug 14, 2020 19:50 I Like It. | Report Abuse Reply 0
Still Unable to see Gold Bonds into Demat. Is there a listing date?
Ramesh V
7.1. Ramesh V  Aug 26, 2020 20:53 I Like It. | Report Abuse 0
Credited in demat on 19th Aug 2020
Enjoyjack
6. Enjoyjack  Aug 20, 2020 16:50 I Like It. | Report Abuse Reply 0
I was checking FAQs related to SGB at below link
https://www.rbi.org.in/scripts/FS_FAQs.aspx?Id=109&fn=2757

At the end it gives email id for queries. See if this helps.
sgb@rbi.org.in
Death Shall Wait
6.1. Death Shall Wait  Aug 20, 2020 18:16 I Like It. | Report Abuse 0
Sent a mail a week back.. Haven't got any reply yet.
anju wadhwa
5. anju wadhwa  Aug 20, 2020 13:05 I Like It. | Report Abuse Reply 0
as per article bonds were supposed to be reflected in Demat on 17/8 but till dt no such reflection. Applied using ASBA and amount was deduted from bank on 11/8.
no mail from RBI ? no status updaion ?? no portal for checking??
bad experience.
JAGADISHWER v
4. JAGADISHWER v  Aug 18, 2020 01:01 I Like It. 1 | Report Abuse Reply 0
I applied for 100 units through hdfc bank. As on 18.8.2020 I didn't receive any information as to whether allotted or not. Whom shall I approach?
VRS
4.1. VRS  Aug 19, 2020 22:54 I Like It. | Report Abuse 0
Me too. ICICI bank account debited on 11th. I had provided zerodha DP id and Demant accoint number. But unable to see the same till now. Please someone guide where to check the same.
jjj
3. jjj  Aug 18, 2020 17:19 I Like It. | Report Abuse Reply 0
Got an sms today from CDSL notifying credit of alloted units to demat account (linked to zerodha). I remember getting a sms for application also.

I had also applied separately via HDFCSEC and still waiting for an update on that. Looks like CDSL(Zerodha) is better than NSDL(HDFCSEC) in sending notifications
Enjoyjack
3.1. Enjoyjack  Aug 18, 2020 19:54 I Like It. 1 | Report Abuse 0
How did you apply such that you got option to link Gold Bond to Zerodha ?
Enjoyjack
2. Enjoyjack  Aug 14, 2020 20:34 I Like It. | Report Abuse Reply 0
I had applied through HDFC net banking and my demat is with Zerodha. Amount is debited from my bank account, but how shall I receive the Gold units ?
Please help me.
Prabhaharan
2.1. Prabhaharan  Aug 16, 2020 22:38 I Like It. | Report Abuse 0
Same scenario. Applied thru HDFC net banking. DEMAT is ZERODHA. No update yet
Enjoyjack
2.2. Enjoyjack  Aug 17, 2020 14:56 I Like It. | Report Abuse 0
@Prabhaharan - I did not get any column / box to update demat account number while applying from HDFC netbanking. So I am clueless how this will reflect in Zerodha.
Spoke to HDFC bank team - they informed that I should have demat with HDFC securities if I want to apply for Gold Bonds.
So now I am super confused what will happen. Please do let me know if you get any leads.
carthicb
1. carthicb  Aug 17, 2020 09:25 I Like It. | Report Abuse Reply 0
Same with me. I checked with zerodha customer care today, they said that it will take 15-20 days for the bonds to be reflected under holdings.








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