Sovereign Gold Bonds (Series IV): Should you invest in SGB when gold prices are at all-time high?

If you miss the deadline, you can still purchase SGBs from the secondary markets.

If you are planning to invest in Sovereign Gold Bonds, then you need to hurry up as the 2020-21 Series IV of the Sovereign Gold Bonds (SGB) scheme is going to close for subscription today, because the scheme had opened for subscription between July 6 and July 10, 2020 with the settlement date being July 14, 2020.

As per an RBI notification issued in April this year, subscription for the gold bonds may be made in the prescribed application form (Form A) or in any other form as near as thereto, stating clearly the grams (in units) of gold and giving the applicant’s full name and address. Every application must be accompanied by the ‘PAN details’ issued by the Income Tax Department to the investor(s).

However, despite the attractiveness of the SGB scheme, the question arises: Should one invest in Gold Bonds when gold prices are at an all-time high?

Financial experts say the RBI-issued Sovereign Gold Bonds are one of the best investment instruments in the coveted yellow metal. The current tranche for SGBs (Series IV FY20-21) can be subscribed until July 10, 2020, at the price of Rs 4852 per gram of gold, and the same will be issued to the subscribers on July 14, 2020. Significantly, online subscribers who pay digitally can benefit from a Rs 50 discount per gram of gold, so that is something that should be kept in mind.

“If you miss the deadline, you can still purchase SGBs from the secondary markets. Freedom from concerns over purity and storage, a 2.5% p.a. interest during the holding period over and above the appreciated price of gold, and no capital gains tax on redemption make SGBs a smart investment choice which can be better than physical gold investments or even gold ETFs and gold mutual funds,” says Adhil Shetty, CEO, BankBazaar.com.

That being said, your investment portfolio should be optimally diversified which is strictly in line with your returns expectations, risk appetite, and liquidity requirements. Skewing it towards one particular asset class, including gold, is unlikely to achieve this.

“As such, you mustn’t go overboard with your gold investments and invest more than your requirements as prices of gold tend to flat-line for long periods of time despite the recent growth in prices. I would, however, suggest limiting your gold investments to a maximum of 10% of your portfolio’s value should be ideal,” advises Shetty.