InvestorQ : Can you tell me some of the key features of the sovereign gold bond issue second tranche that has opened on 22nd August?
Arusha Ray made post

Can you tell me some of the key features of the sovereign gold bond issue second tranche that has opened on 22nd August?

2 months ago

The August Sovereign Gold Bond issue will be the second tranche for the current fiscal year FY23. Normally, most of the features of the gold bond issue remain the same, except for the price which is pegged to the price of gold. For the second issue of Sovereign Gold Bonds (2022-23 Series II) of FY23, the price of the issue has been fixed at Rs5,197 per gram. However, like on previous occasions, all digital applications will get an additional discount of Rs50 per gram. Hence the effective cost of digital applications will be Rs5,147 per gram.

The question is where do you procure these gold bonds and what will the limits for your application? Firstly, the sovereign gold bonds would be sold through commercial banks, post offices, NSE, BSE and SHCIL. NRIs cannot apply for Sovereign Gold Bonds. The minimum size of the investment in sovereign gold bonds will be 1 gram and then in multiples of 1 gram. The maximum limit of gold bonds that can be purchased by a person in a year is the equivalent of 4 KG. However, for trusts, this limit is 20 KG.

Let me now turn to the taxation aspects of the sovereign gold bonds. The bonds will pay interest at the rate of 2.5% per annum, payable half yearly. However, redemption at the end of 8 years will be linked to the price of gold. Now for the taxation aspects. The interest income on SGB is fully taxable in the hands of the investors at the peak rate applicable. SGB is free from capital gains if held till the 8 years maturity. However it will be taxed as non-equity capital gains at 20% of indexed gains if sold before 8 years.

What about liquidity? The Sovereign Gold Bonds will be tradeable on the BSE and the NSE after 6 months of the closure of the gold bond issue. However, secondary market trading has seen limited liquidity only. In addition, the investors will also have a redemption window offered by the government at the end of the fifth year, the sixth year and the seventh year. During these periods, the individual can redeem at the RBI authorized special window. However you must be careful of the higher tax implications of early redemption.

How to make a decision whether or not to invest in these sovereign gold bonds? You just need to look at asset allocation. Ideally, gold can be 10% to 15% of your overall portfolio. Gold offers protection to your portfolio in tough times. Don’t let gold exceed that allocation. SGBs are also one of the forms of gold investment. Look at it that way.