Sovereign Gold Bond Series-3 at Rs 4,889 per gram – Should you avoid and buy from secondary market now?

Sovereign Gold Bond Series-3 2021-22Sovereign Gold Bond Series-3 – 2021-22 – Issue Details, Bond Price and Review

Sovereign Gold Bond Scheme – Series-3 (Tranche III) of 2021-22 would open for subscription on May 31, 2021. Sovereign Gold Bonds (SGB) 2021-22 Price is based on the average price of the preceding 3 days of the issue opening date which is fixed by Govt of India. These gold bonds offer Rs 50 per gram as discount to investors who invest online in demat form. However, do you know that gold bonds are currently trading at lower price on stock exchanges? Should you invest in Sovereign Gold Bond Series-3 of FY2021-22 or buy from secondary market then?

Also Read: Exide Life Guaranteed Wealth Plus – Get Regular Income for 30 years

Sovereign Gold Bond Series-3 (2021-22) – Issue Price, Dates and Details

Sovereign Gold Bonds Series-3 would open for subscription on Monday, May 31, 2021, and closes by Friday, June 4, 2021.

Series-3 issue price is fixed at Rs 4,889 per gram. Last week series-2 bonds were issued at 4,772 per gram (2.4% lower compared to current issue). Investors who are investing through online/demat form would get a discount of Rs 50 per gram. Means this would be available for Rs 4,839 post discount.

These bonds are issued by RBI on behalf of the Government of India, hence are considered as one of the safest investment options.

The settlement date for Series-3 would be within a week after the issue is closed.

These bonds would carry 2.5% interest rate per annum, which is payable every half year.

The sovereign gold bond scheme has a tenure of 8 years. However, one can exit from these bonds after 5 years on subscription dates.

These Sovereign Gold Bonds are issued in denominations of 1 gram of gold and in multiples of 1 gram.

Minimum investment is equivalent to 1 gram of gold.

The maximum amount of subscription is, 4 kg for individuals, 4 kg for HUF and 20 Kg for trusts and similar entities per financial year (April-March).

How to apply for Sovereign Gold Bonds May 2021 issue?

The gold bonds will be sold through all banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognized stock exchanges i.e., NSE/BSE.

I would recommend you buy through demat form so that everything is online, and you also get a Rs 50 discount per gram.

How much tax you need to pay on Sovereign Gold Bonds?

Taxation needs to be checked both from capital gains as well as from interest received. Taxation of Sovereign gold bonds capital gains would be different if you sell them in stock market vs redeem on maturity. Hence one needs to be cautious about it.

Who can invest in these Sovereign Gold Bonds?

If you fall under any of the below categories of investors, you can invest in these gold bonds.

1) Investors who want to diversify their portfolio into multi asset i.e., equity, debt and gold can invest in such gold bonds.

2) Investors who want to accumulate gold for future purpose (gift ornaments to spouse or gift them on daughter marriage) can invest in these sovereign gold bonds.

You would have seen that gold prices have fallen in the recent past and bounced back now. Gold might provide stable returns in the medium to long term.

Sovereign Gold Bonds – Should you buy or go for secondary market?

We have discussed about sovereign gold bonds in secondary market earlier. Gold bonds in secondary market are available at lower prices, but that does not mean you can buy every gold bond. One can look at tenure, subscription price and then issue price in making the investment decisions. Let me explain with below two examples so that investors are clear. (Data source: Sovereign Gold Bonds Trading on NSE)

1) SGB Feb-2029 XI Series (7 years 9 months duration)

These bonds are trading in secondary market at Rs 4,785 per unit (Subscription price Rs 4,912). This is Rs 104 discount over the current series-3 issue price. Retail investors will anyways get Rs 50 if you buy from Series-3 bonds, but they can get Rs 104 lower price if they buy from secondary market (Rs 54 more discount). Interest would be paid on Rs 4,912 unit which is higher than current series-3 issue price of Rs 4,889. Net summary, you would get 104 lower prices + higher interest compared to series-3 bonds being issued now

2) SGB Mar-2029 XII Series (7 years 10 months duration)

These bonds are trading at Rs 4,789 (Subscription price 4,662). This is Rs 100 discount over the current issue price. Retail investors will anyways get Rs 50 if you buy from Series-3 bonds, but they can get Rs 100 lower price if they buy from secondary market (Rs 50 more discount). Interest would be paid on Rs 4,662 unit which is lower than current series-3 of Rs 4,889. Net summary, you would get 100 lower price, but lower interest too compared to series-3 bonds being issued now

Investors can prefer to buy bonds indicated in point no.1 (not 2) instead of series-3 gold bonds. Why should you pay higher price?

If you like this article, please share this on your Facebook or Twitter. This would be a special gift which you would be giving to our blog.

Suresh KP

9 comments

  • Sivaraman

    Is there a way to buy and sell gold like stocks? Even on secondary market case is the 8 year lock in applicable?

  • Sadiq

    How to generate the Gold Bond certificate once purchased?

    • Sadiq, Once you have purchased it, RBI would allocate these bonds to you within 7-10 days and you would get bond certificate on your demat registered email ID.

  • Manoj

    Suresh,
    I was wondering if in addition to Shriram FD, you could write reviews of Creditbulls and Grip invest who are offering more than 20 percent interest rates. Incredible isn’t it!
    Manoj

    • Any instrument offering high interest rate means, high risk. Pls post your topic on suggest a topic available on menu bar, can review in coming days.

  • HS Subramanya

    Sir , What about brokerage while purchase in secondary market ?

    • Good observation Subramanya. You are getting 2.2% lower price if you buy through demat account (based on live example what I gave). Even if you are paying 0.2% brokerage, still you would get 2% lower price. Yes this I would have updated in the article. Thanks for pointing this out.

  • prashant

    nice article, thankyou

Leave a Reply

Your email address will not be published. Required fields are marked *