Equity investors are struggling to find worthwhile stock investment ideas. For commodity investors, the option is pretty simple: invest in gold and see your investment double in near terms.
If an investor is uncomfortable investing in gold, those who have bought gold bonds are raking in big moolah. This is possible if they decided to redeem their holdings of sovereign gold bonds.
According to official data on SGBs, from the total 38 bond issues so far since November 2015 — when the scheme was launched — 34 took place at a price below Rs 40,000.
In FY2016, the government raised Rs 1,321 crore by selling 4,385 kgs of SGB. At current prices, the government will have to pay as much as Rs 2,250 crore if all investors decide to redeem.
SGBs were announced in November 2015 as a part of the plan to curtail gold imports, and give investors the opportunity to invest in the yellow metal and earn gold price returns without actually buying the metal in its physical form, therefore avoiding unnecessary imports.
Money raised by such bonds is considered market borrowing by the government. Besides price, investors also get 2.5% interest on the invested money and capital gains tax exemptions, if held till the maturity of 8 years. This is why it has become so popular.
Recently, the government sold sovereign gold bonds worth Rs 822 crore, during an issue that ended days before Akshaya Trutiya (26 April). The amount of bonds sold was the third-highest ever during a gold bond sale, and the highest since September 2016.
Even the quantity of underlying gold pertaining to the bonds sold in April, at 1.77 tonnes, was the highest since July 2017, according to official data regarding the sale of sovereign gold bonds.
There is a particular significance of this April bond issue, given that it was a major avenue to purchase gold on Akshaya Trutiya, during the lockdown.
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.
Gold exchange-traded funds (ETFs) were another avenue, but in comparison to sovereign gold bonds, they are less attractive. For example, there were Rs 194 crore in fresh inflows during March.