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Buy gold at discounted price; is SGB better than physical gold?


Sovereign Gold Bond scheme 2022-23: Buy gold at discounted price; is SGB better than physical gold?

Photo : BCCL

New Delhi: The latest tranche of Sovereign Gold Bond Scheme 2022-23 became open was subscription on Monday, December 19 and will remain open for buying till Friday, December 23. These Gold Bonds are issued by the Reserve Bank of India on behalf of the Government of India and are restricted for sale to resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions.
The issue price for Sovereign Gold Bond Scheme 2022-23 (Series III), which is open to buy for 5 days, has been fixed at Rs 5,409 per gram.

What is Sovereign Gold Bond?

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

Sovereign Gold Bonds bear 2.50 per cent interest rate per annum on the amount of initial investment, which is credited semi-annually to the bank account of the investor. The last interest will be payable on maturity along with the principal.

SGB price

While the central bank has fixed the issue price of the bond at Rs 5,409 per gram, investors can get this at a discounted rate. SGB investors who apply online and make digital payment can avail Rs 50 per gram discount on the bond.

For example, if an investor is looking to buy one gram of gold through SGB, instead of Rs 5,409, they can purchase the said amount for just Rs 5,359 by paying digitally. The central government in consultation with RBI has decided to allow a discount of Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

SGB vs physical gold

Owning physical gold is one of the most preferred ways of having gold as an investment in Indian households, however, it comes with its own set of risks. But in the case of SGBs, the quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption/premature redemption.

The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.

In addition to these factors, Sovereign Gold Bonds are free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

RBI Sovereign Gold Bonds

Sovereign Gold Bonds are issued in denominations of one gram of gold and in multiples thereof. The minimum investment in the SGB shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).

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