The Ministry of Finance on Thursday announced that the subscription for Series III of the Sovereign Gold Bond Scheme 2022-23 will open on December 19, 2022, i.e., today. The subscription will remain active until December 23. The bonds will be settled on December 27. The issue price of the SGB 2022-23 Series III has been fixed at Rs 5,409 per gram. Online subscribers can secure these bonds at a discount of Rs 50 per gram.

Gold is considered a symbol of Lakshmi, the goddess of wealth and prosperity. In the last couple of decades, gold has evolved from being a precious commodity used for jewellery to one of the popular investment instruments. Due to its constantly increasing value, gold has been helpful for people during financial crises for the past many years. When in need, you can sell your gold jewellery or pure gold bars/coins to get instant funds or opt for a gold loan.

When it comes to creating an investment portfolio, investing in equity mutual funds is necessary to earn inflation-adjusted returns and participate in the growing economy. However, bear in mind that equity mutual funds carry high risk, and you need to be very careful while selecting the right mutual fund schemes based on your risk appetite, investment horizon, and investment objectives.

While investing in asset classes that allow you to earn higher returns is crucial for a winning portfolio, a good portfolio is a mix of different asset classes that complement each other. That is why gold acts as a good diversification option. Besides, during uncertain economic conditions and market volatility, gold is expected to perform well and gain the attention of investors.

While many investors traditionally prefer buying physical gold, a Sovereign Gold Bond Scheme makes a superior alternative that offers many advantages over physical gold.

What are Sovereign Gold Bonds?

• Sovereign Gold Bonds are gold bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India. In other words, SGBs are government securities denominated in grams of gold.
• In November 2015, the Indian government launched the Sovereign Gold Bond (SGB) Scheme to provide investors with a substitute for holding physical gold. The investors are required to pay the issue price in cash, and the bonds will be redeemed in cash on maturity.
• It is considered a superior alternative to holding gold in physical form as it allows you to earn from the appreciation in the gold price while also paying you the fixed interest rate of 2.5% per annum payable semi-annually on the nominal value.
• The bonds are held in the books of the RBI or in a de-mat form eliminating the risk of loss, theft, etc. As an investor, you have the option to convert your holdings into a dematerialised (de-mat) form.
• The SGB eliminates the risk and cost of storage as it is a paper-based instrument.
• The quantity of gold the investors pay for is protected as the investors receive the ongoing market price at the time of redemption.
• There could be a risk of capital loss if there is a decline in the market price of gold. However, the investors do not lose in terms of the units of gold which they have paid for.
• It is free from concerns like making charges, GST, and gold purity that buyers of gold jewellery have to face.
• The SGBs are offered for purchase to resident individuals, HUFs, Trusts, Universities, and Charitable Institutions. That said, NRIs and foreign institutions are not permitted to own the bonds.
• The SGB tenure is eight years. However, investors have the option of premature redemption after the 5th year from the investment date.
• The SGBs are issued in denominations of one gram of gold and multiples thereof. Minimum investment in the SGB could be as low as one gram. It can go up to a maximum subscription limit of 4 kg for individuals and Hindi Undivided Families, i.e., HUFs, and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year.
• In the case of a joint holding, the investment limit is applied to the first holder only.
• The price of the bond is fixed in Indian Rupees based on a simple average of the closing price of gold of 999 purity, published by the Indian Bullion and Jewellers Association Limited (IBJA) for the last three working days of the week preceding the subscription period. The investors who subscribe online and pay through online mode get a discount of Rs 50 per gram.
• The redemption price will be in Indian Rupees based on a simple average of the closing price of gold of 999 purity of the previous three working days published by IBJA Ltd.
• The SGBs are sold through Commercial banks, Stock Holding Corporation of India Limited (SHCIL), Clearing Corporation of India Limited (CCIL), designated post offices, and recognised stock exchanges like National Stock Exchange of India Limited and Bombay Stock Exchange Limited, either directly or through agents.
• The customers will be issued a Certificate of Holding on the date of issuance of the SGB. Certificate of Holding can be collected from the issuing banks/SHCIL offices/Post Offices/Designated stock exchanges/agents or obtained directly from RBI by email, provided an email address is provided in the application form.
• The interest on SGBs shall be taxable as per the provision of the Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual is exempted. The indexation benefits will be provided for long-term capital gains arising to any person on transfer of the SGB.
• The SGBs are eligible for trading. However, you should know that if the bonds are sold via the exchange platform, the applicable capital gains tax will be payable at the same rate as for physical gold.
• The only mandatory document to invest in SGB is PAN Card, without which you cannot invest in the SGB.

Should you invest in Sovereign Gold Bond 2022-23 Series III?

The Sovereign Gold Bonds 2022-23 Series III is open for subscription for 5 days from today, i.e., December 19 to December 23, with a settlement date of December 27, as notified by the Ministry of Finance, Government of India on December 15, 2022.

The issue price of the SGB 2022-23 Series III during the subscription period shall be Rs 5,409 per gram, as also published by the RBI in their Press Release dated December 16, 2022.

In consultation with the central bank, the Finance Ministry has also decided to allow a discount of Rs 50 per gram from the issue price to those investors who apply online and make payment through digital mode. So, for such investors, the issue price of the gold bond will be Rs 5,359 per gram.

Diversification of your investment portfolio with different asset classes is key to a winning portfolio, especially during current economic uncertainty and constantly increasing inflation rates worldwide. Since gold proves to be an effective diversifier, it is advisable to allocate 5% to 10% of your corpus to gold.

SGB is a worthwhile investment that helps you smartly hedge your portfolio while being an extremely liquid investment avenue. It is considered to be a much better option than physical gold as well as digital gold because of the convenience, cost-effectiveness, and added assurance of the safety of the investment, as it is backed by the government and regulated by the RBI.

Hence, if you are looking for some portfolio diversification with a low-risk investment avenue that provides a fixed interest rate, the Series II of the Sovereign Gold Bond 2022-23 is something you should consider at the moment.

However, the threat of the emergence of new viruses, geopolitical tensions around the world, rising inflation, and uncertain economic conditions can result in the price fluctuation of gold. Therefore, for portfolio stabilisation, it makes sense to invest only a portion of your investment in SGB for the long term, based on your risk appetite, time horizon, and investment objectives.

What are the tax implications on the interest and capital gain of the SGBs?

Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.

How to invest in Sovereign Gold Bond 2022-23 Series III?

If you are looking to subscribe to the SGB 2022-23 Series III, you can apply through listed scheduled commercial banks, Stock Holding Corporation of India Limited (SHCIL), stock exchanges (NSE and BSE), designated post offices, or agents. If you are investing in SGBs for the first time, investing offline may sound convenient to you, but the online process is quite easy to follow. Besides, you get a Rs 50 discount per gram of gold by subscribing through online modes like internet banking.

When is the next chance to subscribe to SGBs?

If, for any reason, you are unable to subscribe to Sovereign Gold Bond 2022-23 Series III, you can apply for SGB 2022-23 Series IV, which will be open for subscription from March 06 to March 10, 2023.

This article first appeared on PersonalFN here