- Date : 12/08/2022
- Read: 4 mins
The current high inflation and recession fears in developed economies make a good case for investing in gold through the current SGB tranche.
On 15 June 2022, the Reserve Bank of India announced the Sovereign Gold Bond Scheme 2022-23. As per the scheme, the Sovereign Gold Bond dates for the next tranche (2022-23 Series II) are 22-26 August 2022. The RBI will issue bonds to successful applicants on 30 August 2022.
In this article, we shall discuss the scheme details and whether you should invest in SGBs.
What is the Sovereign Gold Bond (SGB) Scheme?
The Sovereign Gold Bond Scheme allows investors to invest in gold in digital format. Investors are issued bonds whose price is linked to the price of physical gold as published by the India Bullion and Jewellers Association Limited.
Factors for investing
Here are some reasons why you should invest in the current SGB 2022-23 Series II tranche:
- Rs. 50 discount per gram for online application and payment through digital modes
- Appreciation in bond price linked to the price of gold of 999 purity
- Annual 2.5% interest paid on a half-yearly basis
- No capital gains tax on redemption
- Assured safety since the bonds are issued and managed by the RBI on behalf of the Government of India
- The bonds can be traded in the secondary market, thereby providing liquidity
Performance of gold
Let us look at gold’s performance in the last 10 years.
Chart: Gold 10-year price performance
The above chart shows how the price of gold has increased from around Rs 35,000 per tola to around Rs 57,000 per tola in the last ten years. Gold is considered a hedge against inflation and a safe haven against uncertainty.
Global inflation and uncertainty
Currently, inflation in India, the US, and many economies across the globe is at a multi-year or multi-decade high. Also, there is a lot of uncertainty due to interest rate hikes by central banks, the ongoing Russia-Ukraine war, supply chain disruptions in China due to COVID, fear of recession, etc. In such a high inflationary and uncertain environment, it is recommended that you invest in gold as it does well during such times.
An individual can apply in the current SGB 2022-23 Series II tranche through designated banks, post offices, Stock Holding Corporation of India Ltd. (SHCIL), stock exchanges, etc. An individual can make an application in denominations of 1 gram of gold and multiples of it. The maximum subscription limit for an individual is 4 kilograms in a fiscal year.
Applications for the current SGB tranche will be open from 22 August to 26 August 2022.
Should you invest in Sovereign Gold Bond Scheme (SGB) 2022-23 Series II tranche?
As per asset allocation, gold should be a part of every investment portfolio, along with equity and fixed income. The proportion of each asset may vary as per the investor’s risk profile. What's more, the current high inflation rate and uncertainty make a good case for investing in gold.
Sovereign Gold Bonds are one of the best ways of investing in gold when you consider their benefits. Some of these benefits include a discount on the online application, 2.5% annual interest, capital gains tax exemption on redemption, etc. So, you may consider applying in the current SGB tranche.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.