/Why some analysts want you to avoid current series of sovereign gold bond?

Why some analysts want you to avoid current series of sovereign gold bond?

New Delhi: The Series-V of the sovereign gold bond (SGB) scheme 2020-21 opened for subscription on Monday. The issue comes at a time when gold prices are trading at record highs.

Prospective bidders, who intend to subscribe to the scheme, can bid for a minimum of 1 gm of gold at Rs 5,334 per gm. There will be a Rs 50 discount if the prospective investors bid online. The issue closes on Friday, August 7. The certificate of bond(s) will be issued on August 11.

Some analysts, however, advised investors to give it a miss and wait for the next series, which will be issued at the end of August, as they find the prices unfavourable at this point.

“The Sovereign Gold Bond issue will be pushed heavily given the performance of gold lately and spreadsheet analysis. I reiterate ignore this one, wait for the next tranche. Gold prices could correct sharply near term before rising long term,” tweeted Sandip Sabharwal, an independent market expert.

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

“SGBs are to be treated more as an asset diversification strategy rather than as an option to earn superior returns. One can also consider doing an SIP in every tranche of gold bonds, especially by those who are either underinvested in gold or have regular fresh monies for allocation to various asset classes or need to accumulate gold for weddings or other auspicious occasions,” said HDFC Securities.

Investors would get a 2.50 per cent interest on the amount of initial investment, which will take effect from the date of 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 RBI on behalf of the government.

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

Among the benefits of subscribing to the SGBs are 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, said HDFC Securities.

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