The Sovereign Gold Bond Scheme 2023-24 – Series I – has opened for subscription on Monday, June 19, and will close on June 23, with the settlement date of June 27.
The issue price is Rs 5,926 per gram of gold while there is a discount of Rs 50 for those investors who subscribe to it online.
The nominal value of the bond is based on the simple average closing price published by the India Bullion and Jewellers Association Ltd (IBJA)) for gold of 999 purity in the last three working days of the week preceding the subscription period. In this case, it is June 14, June 15, and June 16, 2023.
Brokerage firm ICICI Direct stated that “Recent correction offers investment opportunity.”
“Gold prices recently witnessed a correction of around 5% from their all-time high levels in May 2023. From around Rs 62,000 levels, gold prices are currently trading at below Rs 59,000 per 10 grams on the MCX exchange. As the outlook on gold prices remains positive, this minor correction is a good entry opportunity from a long-term allocation perspective,” ICICI Direct said.
Globally, interest rates are near peak levels with the US Federal Reserve likely to start cutting interest rates from the end of the current calendar year. Historically, a decline in interest rates has a positive correlation with gold prices as it lowers the opportunity cost of holding gold.
However, the latest Union Budget has made investment in gold through Gold ETFs/Gold funds less attractive. Gold ETFs/Gold funds will no longer have benefits of long-term capital gains (LTCG) tax and indexation and will be taxed at the marginal tax rate from April 1, 2023. Accordingly, investment in SGBs has become relatively even more attractive compared to other modes of investment, ICICI Direct said.
“The robust price structure on long-term charts makes us believe prices have significant upsides towards Rs 68,000 levels over two to three years as they are the confluence of the last two year’s broad range breakout (56000-44000) and also the value of the rising supply line joining major yearly high of CY12 and CY20. Hence, investors should continue investing to benefit from multiyear uptrend,” ICICI Direct said.
The advantage of SGB over other forms of Gold is on multiple counts. Apart from capital appreciation, SGBs offer a 2.5% interest on the capital appreciation, Personal Finance expert Jitendra Solanki said. There is no capital gains tax if one remains invested for 8 years, he added.
SGBs are highly liquid and are traded on the exchanges, Solanki further said. There is a sovereign guarantee and no danger of default. Moreover, there is no expense in managing it, the expert said.
Solanki’s advice to investors is to remain invested for 8 years to take benefits of capital gains tax exemption.
Selling SGBs in the secondary market before maturity invites tax at the rate of 20% on capital gains arising from such transactions. The instrument gives indexation benefits to the buyers if the SGB is sold on or after three years and would also be subject to a marginal tax rate if sold before three years.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)