The Reserve Bank of India (RBI) has established the issue price of the Sovereign Gold Bond (SGB) for the September 2023 series at ₹5,923 per gram. The upcoming installment of the program will be available for subscription from September 11, 2023, to September 15, 2023.
In a press release pertaining to the price, date, and other particulars of the Sovereign Gold Bond, the RBI stated, Sovereign Gold Bond Scheme 2023-24 Series II will be open for subscription from September 11–15, 2023. The nominal value of the bond based on the simple average of closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three working days of the week preceding the subscription period, i.e., September 06, September 07, and September 08, 2023, works out to ₹5,923 per gram of gold.
Buying SGBs at discounted prices
The SGB scheme is a government-backed investment instrument designed to enable investors to acquire gold without the need for physical possession. These bonds are denominated in grams of gold and are issued in multiples of one gram. The minimum investment allowed in SGBs is one gram, with a maximum limit of 500 grams per individual per fiscal year (April to March).
In collaboration with the Reserve Bank, the Government of India has resolved to provide a discount of ₹50 per gram below the face value to investors who apply online and complete the payment through digital channels. For these investors, the SGBs will be available at an issue price of ₹5,873 per gram of gold.
The SGBs come with an eight-year tenure and provide an annual interest rate of 2.5 per cent. This interest is paid twice a year, in the months of June and December. Upon maturity, the bonds are redeemed at the prevailing market price of gold.
The SGB scheme for the 2023-24 Series 2 will be available for purchase through various channels, including banks, the Stock Holding Corporation of India Ltd (SHCIL), designated post offices, and recognized stock exchanges, namely the NSE and the BSE.
This scheme is exclusively available for purchase by resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable Institutions.
The SGB scheme imposes specific maximum investment limits based on the investor category. For individuals and HUFs, the maximum investment cap stands at 4 kg of gold per fiscal year, which runs from April to March. This means that both individuals and HUFs can invest up to 4 kg of gold collectively across various tranches during the financial year.
This investment limit applies cumulatively across different tranches within the same financial year. For example, if an individual invests 2 kg of gold in the initial SGB tranche in April, they may invest another 2 kg of gold in the subsequent tranche in May. However, the total investment within that financial year must not exceed 4 kg.
Additionally, this investment ceiling also applies when acquiring SGBs from the secondary market. If an individual buys 1 kg of SGBs from the secondary market in April, they can only purchase an additional 3 kg of SGBs from the secondary market in the same financial year.
These limitations are established by the government to curb excessive gold investments, given the volatile nature of the asset, with the aim of safeguarding investors from potential losses. If you intend to invest in the SGB scheme, it’s crucial to be mindful of these investment limits and carefully assess your financial objectives and risk tolerance before making investment decisions.
The redemption value of an SGB is determined based on the simple average of the closing price of gold with 999 purity over the previous three working days, as reported by the IBJA. This redemption value is denominated in Indian rupees.
To illustrate, if the closing price of gold on Monday, Tuesday, and Wednesday stands at ₹5000 per gram, the redemption price on Thursday will be ₹5000. This calculation hinges on the nominal value of the bond, which is the price at which it was originally issued.
The SGBs mature after an eight-year tenure, and they can also be redeemed prematurely, beginning from the fifth year. However, there is a penalty for early redemption. In the first year of premature redemption, the penalty is one per cent of the bond’s nominal value, and this decreases to 0.5 per cent for each subsequent year.
The SGBs represent an attractive investment avenue for those looking to invest in gold without the burden of physical possession. They provide a guaranteed annual interest rate of 2.5 per cent and enjoy government backing. Furthermore, the redemption value is tied to the prevailing market price of gold, ensuring investors receive a fair return on their investment.