Investors who bought the first issue of sovereign gold bonds (SGB) in November 2015 have managed to outpace the benchmark equity indices with a bigger margin. The price of the latest SGB Scheme 2020-21-Series VIII, which opened for subscription on November 9, has been fixed at Rs 5,177 per gram with a Rs 50 per gram discount for online subscription.

The latest price indicates that those who invested at the time of the launch have seen nearly 93 per cent growth during the last five years. The bond matures in 8 years but investors have an exit option after 5 years. The widely-tracked equity index BSE Sensex jumped 60 per cent to 42,523 on November 9 (at around 2.30 pm) against 26,559 in November 2015.

The first issue of the gold bond was priced at Rs 2,684 per unit and the previous issue (Series VII), which was open for subscription from October 12 to 16, was sold at Rs 5,051 per gram of gold. SGB 2020-21 is issued by the Reserve Bank India (RBI) on behalf of the government. The bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram.

The bonds are restricted for sale to resident individuals, HUFs, trusts, universities and charitable institutions. The minimum permissible investment is 1 gram of gold and the maximum limit of subscription is 4 kg for individuals and HUFs and 20 kg for trusts and similar entities per fiscal (April-March).

Is it worth to buy the sovereign gold bond during the ongoing festive season? Nish Bhatt, founder and CEO, Millwood Kane International, said, “The government has seen good demand for this instrument. There is a dual benefit in investing in SGB as investors stand to gain 2.5 per cent per annum fixed interest on their investment and the rise in the value of gold once the bond is redeemed.”

Gold prices have seen a stellar rally in 2020, up over 30 per cent since the start of the year. The outbreak of Covid-19 created global uncertainties and pushed gold prices upwards. Major central banks, including the US Fed, ECB and BoE, have slashed interest rates to an all-time low, diverting investments towards the yellow metal.

“At present, the yellow metal is rallying as the government in parts of Europe has imposed lockdown due to the second wave of Covid cases. It threatens to derail the recovery seen till now. Back in India, the festive season gold buying is also seen pushing gold prices upwards. We expect gold prices to trade on a strong note till clarity emerges on a vaccine, stimulus package in the US, proper handover of administration in the US, and control on Covid cases in Europe,” said Bhatt.

The ongoing Sovereign Gold Bond Scheme 2020-21-Series VIII will close on November 13 (Friday). As per the RBI Annual Report 2019-20, a total of Rs 9,652.78 crore, or 30.98 tonnes has been raised through the SGB in 37 tranches since its inception in November 2015.

Commenting on the near-term outlook, Tapan Patel, Senior Analyst (Commodities), HDFC Securities said, “Gold prices on Monday rallied on stimulus hopes after the victory of Democratic candidate Joe Biden, while worries over rising virus cases across Europe and US also boosted safe-haven buying in gold. Higher government spending will eventually pressure the dollar and will lower buying cost for precious metals. We expect gold prices to trade up with resistance at $1980 per ounce.” The commodity is hovering at $1,958 ounce in the international market.

Considering the present market condition, analysts advised to give 5-10 per cent allocation to the yellow metal in the portfolio. Rusmik Oza, Executive Vice President (Head of Fundamental Research – PCG), Kotak Securities, said, “As equity markets have rallied to fast too soon and valuations are at the elevated level the upside from current seems is very less. The risk-reward ratio is less favourable for equities at this point in time. Equities and bonds could underperform while gold and real estate could outperform in the next one year.”

Nirav Sheth, Chief Executive Officer, Emkay Institutional Equities, prefers to give 5 per cent allocation to gold, 70 per cent to equities, 15 per cent to real estate and 10 per cent to bonds.

On the other hand, Jyoti Roy, DVP Equity Strategist, Angel Broking said, “We believe that a moderate investor should have 60 per cent of their investments in equities, while the allocation to bonds and gold could be 30 per cent and 10 per cent respectively. For a conservative investor, we would recommend an equity allocation of 40 per cent while allocation to bonds and gold could be 40 per cent and 20 per cent respectively.”





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