Best Sovereign Gold Bonds to buy from secondary market
Sovereign gold bonds are being offered in several tranches by Govt of India during the year. These are offered at Rs 50 lower price per gram which is approx. 1% lower than the issue price. Sovereign gold bonds would trade on the stock exchange like any other stocks as these are issued in demat account too. However, if you observe, some of the sovereign gold bonds are trading at lower prices on stock exchanges compared to current issue price. Some of you might be thinking to buy from the secondary market instead through regular bonds offered directly by Govt of India. However, many are making mistakes of buying bonds that provides low returns. Which are the best Sovereign Gold Bonds to buy from secondary market? Do lower price gold bond would give high returns?
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Quick overview about Sovereign Gold Bond Scheme
If you are already aware about these gold bonds, skip this section.
Sovereign gold bonds are issued by Govt of India.
These bonds are issued in the denomination of units. 1 Gram denotes 1 unit.
Govt of India is issuing these bonds in several tranches during the year.
These bonds have a maturity period of 8 years. However, one can do premature withdrawal after 6 years.
These bonds have interest rates of 2.5% per annum.
On maturity, the equivalent value of gold gram units would be credited to your bank account. Means there is no physical delivery of gold.
Sovereign Gold Bonds through regular tranche Vs Secondary market
When you buy these bonds directly during the subscription period, one can get Rs 50 off per unit. This is approximately 1% of the gold value (depending on the value of the unit value).
However, when you buy from the secondary market, there is no such discount offered by Govt of India. However, these can be purchased from stock exchanges are rate which is being offered by selling holders of these bonds.
Here are the Sovereign gold bonds that are trading on October 19, 2020 and their market prices. We have taken out only where there are sales happening for such bonds beyond 20 units.
|Symbol||Last Traded Price|
If you observe, these bonds are trading at Rs 4,831 to Rs 4,980 per bond. The last bond price that was issued by Govt of India in Oct-20 tranche was Rs 5,051. Even we consider discount of Rs 50, investors has actually paid Rs 5,000. Can we straight away buy Rs 4,831 per bond from secondary market instead of buying from Govt of India? The answer is NO. Do you know that with this step, you would be getting 30% lower returns? One should not just look for market price alone. One should also look for the subscription price + interest payment which would be done in every 6 months. Lets keep an interest portion aside for the time being instead of complicating too much.
Let me explain with few examples.
1) You have bought sovereign gold bonds in last tranche (Oct-20) where it was offered for Rs 5,051. Assume you have invested Rs 5 Lakhs and you would have got approx. 100 units (before any discounts). You would get Rs 12,500 as interest on such bonds every year.
2) Now let us assume you want to invest this Rs 4,831 (lowest) bond available damn cheap instead of investing at over Rs 5,000 direcly from GOI. Assume you have invested Rs 5 Lakhs and you would have got approx. 103.5 units. You would get Rs 10,065 as interest on such bonds every year. Why such a low interest is because interest is paid on subscription price and NOT on market price of these bonds. The subscription price of this tranche bonds are Rs 3,890 per bond, but trading at Rs 4,831 now.
This is approximately 25% lower interest what you would have gotten by going blindly with bonds from the secondary market.
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Best Sovereign Gold Bonds to buy from secondary market
One should mainly look for the subscription price. If subscription price is high, then interest is high. One can go for highest subscription price and lowest market price bonds. All bonds issued during that year would have a similar maturity amount for that year (except for some variations).
Here is the list of Sovereign gold bonds that are being traded in secondary market now in 2020 along with their current market price, subscription price, maturity period and annualized interest one would get it. Depending on the tenure you want to buy you can choose the highest interest earned sovereign gold bonds for that period.
Eg. If you want to invest for 7-8 years in these gold bonds from secondary market instead directly from Govt of India, you can choose Jul, Aug and Sep tranche bonds available now on the secondary market that are giving highest interest. If you see from below list, longer the tenure of bond, the higher is the interest rate.
I am giving Last Traded Price (LTP)
Subscription Price (Sub Price)
Yearly Interest for 5 L investment
|Symbol||LTP||Sub Price||Yly Interest||Maturity|
If you would like to know subscription price and latest prices on secondary market, you can visit this NSE link.
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On maturity, the equivalent value of gold gram units would be credited to your bank account
From above line for knowledge purpose, who will decide the value of gold? is it by Govt of India or secondary market rate?
Hello Ramesh, If you see the Price is based on the average price of the preceding 3 days of the issue opening date which is fixed by Govt of India. I guess the same applies for redemption.
Great article and best explanation. Good job Suresh.
From where we can get the Subscription price & Last Traded Price
Thank you. You can check this NSE link for latest SGB prices on NSE + their subscription price. https://www1.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=SGB
Thanks for replying back generously to my previous question, Suresh.
I have another one for you:
1. As there is no LTCG on SGB, but it is applicable when the bonds are sold on the stock market before maturity, will I be charged LTCG on my bonds which I bought from the market but DO NOT sell-off before maturity?
2. As the government issues a certificate when we buy the bond directly from RBI, how will I get that certificate if I buy the bonds from the stock market?
Thanks in advance!
LTCG is applicable if you sell them on stock market before maturity. If you buy from GOI or from secondary market and hold them till maturity, no LTCG is charged
If you buy from secondary markets these bonds would be directly credited to your demat account and you would not get any separate certificate for these SGB
Got it. Thanks a ton Suresh 🙂