The Reserve Bank of India (RBI) has announced the launch of the Sovereign Gold Bond (SGB) Scheme Series III for the fiscal year 2023-2024, which will open for subscription from December 18 to December 22. This comes at a time when gold prices have surged by more than 10% in 2023, despite the prevailing high interest rate environment.
The issue price for the Series III will be determined based on the average closing price of 999 purity gold in the last three working days preceding the subscription period. SGBs have an eight-year tenure with an option for premature redemption after the fifth year, and they offer a 2.5 percent annual interest, payable semi-annually. Investors also receive the prevailing gold price upon redemption, making SGBs a hedge against gold price fluctuations.
Despite their long-term investment benefits and tax advantages, SGBs may not be suitable for those with short-term investment strategies due to their eight-year maturity. However, they do offer a five-year early redemption option. Additionally, SGBs may offer less liquidity compared to gold ETFs or mutual funds.
Investors are now faced with the decision of whether to participate in the current Series III or wait for the upcoming Series IV in February. This decision depends on individual investment horizons, risk appetite, and expectations regarding future gold price movements.
Additionl Insight: SGBs provide investors with a unique opportunity to invest in gold while also earning an annual interest. The fact that they are backed by the government of India and exempt from capital gains tax at maturity makes them an attractive option for long-term investors looking to diversify their portfolio with gold. However, potential investors should carefully consider their investment goals and time horizon before making a decision to participate in the SGB Scheme.
