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Journalism of Courage
The Reserve Bank of India (RBI) has announced the Sovereign Gold Bond Scheme 2022-23 – Series III, which will be open for subscription during December 19-23, 2022.
The quantity of gold for which the investor pays is protected, since he receives the ongoing market price at the time of redemption or premature redemption. Investors who put money in gold bonds three years ago are now sitting on a gain of 45 per cent and five years ago have made a valuation gain of 89 per cent.
The offer
The nominal value of the bond based on the simple average 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 — December 14, 15 and 16, 2022 — works out to Rs 5,409 per gram of gold. There is 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.
Return
The RBI on Friday said gold bonds (Series XII) issued in December 2017 at Rs 2,890 per gram will be redeemed on December 17 at Rs 5,409 per gram, a gain of 89.16 per cent in value.
The RBI offered the gold bonds at the rate of Rs 4,791 per gram in November 2021. This has now gone up to Rs 5,409, showing a rise of 12.89 per cent. The return for investors is 15.39 per cent in a year’s time, including the 2.50 per cent interest rate offered by the RBI. Investors who put money in gold bonds in November 2019 at Rs 3,795 per gram are now sitting on a gain of 42.52 per cent at the current market price. The total gain is 45 per cent including the 2.50 per cent interest rate.
While banks are offering 6.70-7 per cent interest on one-year deposits, gold bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
However, the attraction is that, on maturity, gold bonds will be redeemed in Indian rupees and the redemption price will be based on a simple average of closing price of gold of 999 purity of previous three business days from the date of repayment, published by the IBJA.
Issued so far
The government has issued gold bonds for 96,283 kg (96.28 tonnes) in 61 issuances since 2016-17, which is worth Rs 52,080 crore at the current market price. Investors have made premature redemption of 876 kg of gold bonds so far.
What are gold bonds?
Gold bonds 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 the RBI on behalf of the government.
These bonds offer 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. It’s 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. While the tenor of bonds is eight years, it can be redeemed after five years.
