Early gold bond buyers reap handsome returns

Chennai: Four years past the first issue of Sovereign Gold Bond, investors are sitting on a handsome return of over 30 per cent. However, low-key marketing and issues around liquidity have driven away the investor enthusiasm in buying gold bonds in the past two years.

The very first series of Sovereign Gold Bond (SGB) was issued at a price of Rs 2,684 per gm in 2015. Compared to that, the gold rate of the last SGB issue in February 2019 was Rs 3,326. The price has appreciated 23.9 per cent in these four years.

The first issue guaranteed a fixed annual interest of 2.75 per cent, though in the later issues it was brought down to 2.5 per cent by providing some discount on the issue rate. Cumulatively this works out to over 30 per cent return for the investor who bought the bond in 2015.

The capital gains from the bonds on redemption are not taxable. The interest portion is taxable as per the tax bracket of investor and for one in the lower tax bracket the tax on the interest part would be negligible. With gold price expected to move up, bond buyers stand to gain more during redemption.

The government till now has come out with 27 issues of gold bond and the total quantum of gold bought through these issues has been 24.84 tonnes. “Government had initially proposed to issue bonds valued up to $2 billion. With 24.84 tonnes, the total issue value has already crossed half of the target,” said Somasundaram PR , Managing Director, India, World Gold Council.

While investors were quite enthusiastic about the bonds initially, the volumes indicate the interest tapering down in the subsequent issues. Until the first issuance in fiscal 2017-18, an average of two tonnes were sold in every issue. In fact, a large chunk of the total tonnage came from the initial nine issues. For the next 18 issues, the average tonnage remained in hundreds of kilo grammes, with gold prices coming down in between.

“The government has been not very aggressive in marketing the sovereign gold bonds as the import of gold and the current account deficit has been much under control. The liquidity issues too have remained a worry for the investors,” said Somasundaram.

The government had allowed trading of SGBs in the stock exchanges. However, not much activity has been happening around trading. Further, there is a lack of clarity as to how the gold returns will get affected if the import duties are brought down.

However, the industry expects that the likely amendments in the Gold Monetisation Schemes and Indian Gold Coin scheme will bring in more clarity and fresh impetus in the gold bond market.