Should you invest in current tranche of sovereign gold bonds?


Investment advisors say the bonds offer a good portfolio diversification option. They also offer the twin benefit of capital appreciation and regular returns, besides not having the risk of handling like physical gold.

The 7th tranche of Sovereign Gold Bonds (SGBs) which is now open for subscription provides a good option for portfolio diversification coupled with an element of stability, say investment advisors.

“We would advise investors to invest in SGBs, especially those who don’t have any exposure to gold as it will help in hedging their portfolio,” says Aasif Hirani, Director, Tradebulls.

Hirani says if one plans to invest in gold for the long-term, the gold bonds offer a better option compared to physical gold. “If one wants to invest a portion of their savings in gold for long-term, SGBs may outscore the gold ETFs where one has to bear fund management charges or physical gold because investors are also getting an annual return of 2.5 percent along with tax benefits,” Hirani said.

He said gold might give good returns in coming months. “Gold has given returns of 9.2 percent from December 2016 to date. The yellow metal is viewed as the best portfolio hedge against uncertainty. Most fund managers believe gold is undervalued,” says Hirani.

Renjith R G, Associate, Director, Geojit Financial Services also suggests investing in the gold bonds. “As part of Asset Allocation and  investment Diversification we would recommend investments in SGBs,” he said.

The current tranche of SGBs will be for subscription till March 3. The bonds will be issued on March 17. The tenure of the bonds is 8 years with an option to redeem from 5th year onwards on the date on which interest is payable.

The issue price of the bonds has been fixed at Rs 2,893 per gram of gold, which is the lowest among the four tranche of bonds floated in the current fiscal. The bond is being offered at Rs 50 per gram less than the nominal value.

Among the benefits, no TDS is applicable on interest indexation benefit if bond is transferred before maturity. Also capital gains tax is exempt on redemption. The bonds can be used as collateral for loans.

Anil Rego, CEO & Founder, Right Horizons, is also in favour of investing in the bonds. “The 7th tranche of sovereign gold bond is a good opportunity from a diversification perspective instead of buying physical gold for investment purposes,” he said.

Rego pointed out the gold bonds provide both capital appreciation and regular returns. “The main benefit of gold bonds is you may get capital appreciation (if gold prices increase) plus interest payment of 2.5 percent per annum. If you buy physical gold or gold ETFs (which also track gold prices) you may get capital appreciation only. Neither physical gold, gold mutual funds nor gold ETFs pay regular interest,” he said.

Sarbajeet K Sen Moneycontrol News

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