The latest tranche of the sovereign gold bond scheme 2019-20 is open for subscription from October 7 to October 11 and the certificate of bonds will be issued on October 15. The RBI fixed an issue price of Rs 3,788 per gram for the Sovereign Gold Bond Scheme 2019-20—Series V. Investors, who apply online and make payments via digital modes, can also avail a discount of Rs 50 per gram on the purchase of the sovereign gold bonds. The sovereign gold bonds are government securities denominated in grams of gold and they are issued by the RBI.

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HDFC Securities said sovereign gold bonds are to be treated more as an asset diversification strategy rather than to earn superior returns. "Doing a SIP in every tranche of gold can be considered by investors who are either underinvested in gold or have regular fresh monies for allocation among various asset classes or need to accumulate gold for a wedding or other auspicious occasions," said HDFC Securities.

Here are the key benefits of investing in the sovereign gold bonds:

1)

Sovereign gold bonds deliver two streams of returns. One in the form of regular interest of 2.50 percent per annum on invested capital every six months and the other in the form of capital gains at the time of redemption in case the price at the time of redemption is higher.

Also Read: All you need to know about sovereign gold bond scheme 2019-20

2) SGBs can be used as collateral for loans. This bond is as liquid as physical gold and could be exchanged for money, albeit on loan basis, at the time of

financial need. The loan-to-value ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.

3) The government exempted capital gains tax on redemption on such bonds. Long-term capital gains to any person on transfer of sovereign gold bonds shall be eligible for indexation benefits.

4) Redemption will take place at the prevailing gold price, giving the investor the value of the bond plus capital appreciation/depreciation from increase/fall in gold prices.

5) The issue price that is fixed at Rs 50 less than the nominal value per gram for digital applications is beneficial for investors. This helps investors get slightly higher returns than that of the gold price in the spot market, noted HDFC Securities.

6) The tenor of the sovereign gold bonds will be for a period of eight years with exit option after the fifth year of the date of issue and such repayments shall be made on the next interest payment dates

7) From 5th year, investors can approach the concerned bank/agent 30 days before the coupon payment date. Request for premature redemption can only be entertained if the investor approaches the concerned bank/post office at least one day before the coupon payment date.

First Published:Oct 9, 2019 11:17 AM IST