Sovereign Gold Bond Scheme 2023-24: Worth Investing?

Giving a double-digit return on investment in 2022-23, the Sovereign Gold Bond (SGB) Scheme tranches 3 and 4 were announced for 2023-24. The scheme yielded an average of 13.7% return for the past few years.

For FY24, the Sovereign Gold Bond Scheme Series III is open for subscriptions from 18 to 22 December 2023. Likewise, Series IV will be available to invest from 12 to 16 February 2024.

SGBs are government-backed bonds issued by the Reserve Bank of India (RBI) that represent specific units of gold. These units are not only a capital source of investment but also provide returns without the hassle of holding the physical metal itself. 😌

You invest in grams of gold and receive guaranteed interest of 2.5% per year, paid half-yearly.

The best part about these bonds is that they are RBI-backed, a low-risk investment option with hefty returns.

But factors like 8-year tenure make investors question whether the bond schemes are worth spending money on. So, let’s devise the answer to this question.

Things You Should Know About SGB Scheme 2023-24

Every year, RBI opens the gate for investments in SGB (twice) as part of the gold monetisation scheme. Though similar in composure, these schemes have a few important changes in their characteristics.

Who & How of Investing in SGBs:

Before jumping into any investment, it’s essential to know the due diligence of it. Let’s cover a few essential details like the eligibility and investment procedure in the Sovereign Gold Bond scheme.

Eligible Investors:

• Resident individuals (including minors through guardians)
• Hindu Undivided Families (HUFs)
• Trusts (both private and public)
• Other entities notified by the RBI

Subscription Process:

• Authorised Bank Branches: Most banks authorised by the RBI accept SGB applications.
• Post Offices: Designated post offices across India facilitate SGB subscriptions.
• Online Platforms: Online platforms like the RBI Kisan Vikas Patra Scheme website allow online applications.

KYC Requirements:

• Proof of Identity (PAN card, Aadhaar card, Driving License, Voter ID, Passport)
• Proof of Address (Aadhaar card, Voter ID, Utility Bill, Bank Statement)
• Additional documents as per RBI guidelines for specific investor categories (e.g., HUFs, trusts)

Interesting Fact About RBI Gold Bond Scheme

Were you aware that the government came up with the Sovereign Gold Bond scheme to reduce the purchase of physical gold? Yes, India is one of the largest consumers of gold in the world, and the number was increasing prior to SGB's launch in 2015. 🪙

After its launch, the consumption volume decreased drastically from 662 metric tons to 514 metric tons, as portrayed in the infographic below. 👇

This initiative also brings with it many additional benefits, such as:

• Diversified investment option
• Easy liquidation of gold holdings
• Reduction of import dependence
• Promotion of financial inclusion, etc.

Finally, it’s time for the ultimate question of the time.

SGB Scheme 2023-24: A Pass or Skip Investment Opportunity?

If we look at the past performance of the SGB Scheme Series, the fiscal year 2022-23 saw a sharp decline of 46%. For the gold monetisation scheme, ₹7,100 crore was collected in FY23 compared to ₹13,100 crore in FY22.

There were multiple reasons for this decline. Here are some of them:

Issue Prices

The issue price is availed by the Reserve Bank of India every year. Issue price for 2022-23 ranged between ₹5,041-5,611 per gram, whereas for 2021-22, it was ₹4,777-5,109 per gram. The reason for this price rise can be attributed to the increase in gold’s import duty for the year. 💸

Payment can be made cheque, demand draft, electronic banking and cash (up to ₹20,000).

No Price Correction

Generally, in the July-September quarter, gold prices see a correction, but this yearly occurrence didn't take place in FY23.

The fear of recession and market uncertainty due to global economic events are some of the reasons behind this turn of events. 🌐

Mutual Funds & Equity

SGB is an 8-year-long scheme, whereas options like mutual funds and equity present a low commitment opportunity for investors.

People rarely wish to commit to such long-term investment options due to low liquidity and the waiting period. This has always been a contributing factor towards investors’ hesitance in choosing SGB over other alternatives. 😟  

Talking of alternatives,

We've learned why SGB investors gave it the cold shoulder in 2022-23. Now, let's see if this fiscal year's offering puts the "bling" back in gold bonds! ✨

Sovereign Gold Scheme: What’s New?

After the generic details, let’s see what separates Scheme III & IV 2023-24 from the previous scheme.

Price of the Issue

RBI has revealed the issue price for this fiscal year’s scheme at ₹6,199 per unit. The valuation of the bonds depends upon the closing price of the gold with 999 purity of the gold as per the India Bullion and Jewellers Association (IBJA).

The closing price for the last three days, i.e., 13, 14, and 15 December 2023, was the average of ₹6,199 per gram, which is what the issue price is for this year.

Subscription Limit

The minimum investment to apply in SGB is 1 gram, and the maximum limit is 4 kg per fiscal year.

This limit is the same for individual investors and HUFs, but the trusts and similar entities have a comparatively larger subscription limit of 20 kg.

₹50 Discount

 This is one of the most alluring factors of the Sovereign Gold Bond scheme 2023-24. Online subscribers applying through internet banking will get a ₹50 per gram discount on their investments.

Already, more and more citizens’ prefer using the online mode for their investments, which makes this discount even sweeter. 🍨

Premature Redemption

Along with the interest rate of 2.5%, SGB investors earn profits as the price of gold increases. Investors also get premature redemption after the fifth year of the bond issue. This occurs on the date of the interest being credited under the SGB scheme.

Tax-Free

You heard that right! If you keep being invested in the SGB scheme until its maturity, you will be free from paying off the capital gain tax. But, remember, if you cop out before the completion of the 8-year tenure, then you would be liable to pay long-term capital gains tax at a rate of 20%.

So, if you are going ahead with the SGB scheme, invest the amount without which you can survive. Or else a good chunk of your money will be taxed with premature withdrawal. 😅

Also read the article Gold Monetisation Scheme: Earn Money on Your Idle Gold

The Bottom Line

While past performance doesn't guarantee future results, this year's tweaks - like the sweet online discount and premature redemption option - paint a promising picture. Whether you dive in for the golden shine or play it safe, remember investing always requires a keen eye as per your financial plans.

What is your conclusion? Are SGB 2023-24 schemes a good investment option? Let us know in the comments below. ⬇️

*Disclaimer: The IPO and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.