Investment

Published: November 9, 2023
Updated: November 9, 2023

Unlock the Glittering World of Sovereign Gold Bonds (SGBs) This Diwali

Investing in Dhanteras: A Glimpse into Sovereign Gold Bonds (SGBs)

With Dhanteras fast approaching on November 10, 2023, the anticipation for investing in gold is growing among many Indians. Recent data from the Reserve Bank of India (RBI) reveals that Sovereign Gold Bonds (SGBs) have become a compelling investment option. But is it worth waiting for the government to issue new SGBs this year? Let's delve into this glittering opportunity.

What Exactly Are Sovereign Gold Bonds (SGBs)?

Introduced by the Government of India in 2015, SGBs offer a unique way to invest in gold. Unlike traditional physical gold ownership, SGBs allow investors to hold gold in a dematerialized form, eliminating concerns about storage and purity. These bonds provide an annual interest rate of 2.50%, credited semi-annually to the investor's bank account, with the final interest payment upon maturity. Investors can purchase SGBs in denominations ranging from 1 gram to a maximum of four kg. A noteworthy advantage is that no tax is imposed upon redemption after the maturity period, making them an appealing choice for long-term investors.

Will the RBI Issue SGBs in the Near Future?

The most recent SGB subscription ran from September 11-15, 2023, with the settlement scheduled for September 20, 2023. While it's unlikely that the government will announce another SGB issue before Dhanteras, historical data suggests a new release could be expected in December 2023. In previous years, the government unveiled multiple series throughout the year, showing a consistent trend of SGB issuances. For those eager to invest in SGBs before December, the alternative is to purchase earlier issues listed in the secondary market at market value.

Unlocking the Potential: Performance of SGBs

Outlook Money gathered data on the performance of SGBs over their last 11 premature redemptions or maturities, as listed by RBI on its website. SGBs, as a category, have provided an annual return of approximately 17.35%, in addition to the 2.5% interest they provide semi-annually.

Among the standout performers are the SGBs from Series XIV of 2017-18 and Series III of 2017-18, delivering returns of 20.41% and 21% over their 5-year maturity period leading up to premature redemption. SGB 2016-I has also shown remarkable performance, offering a return of 18.37% over its 7-year maturity until the premature redemption date on August 8, 2023. These figures showcase competitive returns compared to other fixed-income investment options.

However, it's important to note that these impressive returns are attributed to the consistent rise in the price of gold during this period. There have been years when SGBs did not yield double-digit returns.

As gold prices continue to exhibit an upward trend due to volatile market conditions and their inverse relation to equity, SGBs remain a prudent choice for those seeking stable returns and a secure investment haven.

This Diwali, consider the allure of Sovereign Gold Bonds (SGBs) as a glittering avenue for investment. While waiting for the next SGB release may be worth it, exploring the secondary market for earlier issues is an alternative. The performance of SGBs over the years indicates the potential for competitive returns, making them a smart choice for those seeking stability in their investments amid the ever-changing market landscape.