Double-digit returns likely on Sovereign Gold Bond maturing next year; how much will early SGB investors get? There are five tranches of the gold bond that are going to mature in 2024. In terms of XIRR, the second tranche of the Sovereign Gold Bond will offer 13.44% returns at the current gold price. ET Wealth Online calculates how much returns you can expect from the Sovereign Gold Bond and whether you should invest or not
Is it a good time to invest in Sovereign Gold Bonds (SGB)? As an investor, you may want to know how much returns it will give you on maturity. If you look at the historical data, investors of the Sovereign Gold Bond are in for handsome returns, very close to what is being earned from the stock market. The first tranche of the Sovereign Gold Bond, which matured on November 30, offered a net return of 12.92% per annum, including the fixed interest payment. Will this glitter continue in the future?There are five tranches of the gold bond that are going to mature in 2024. ET Wealth Online calculates how much returns you can expect from the Sovereign Gold Bond and whether you should invest or not.
How much returns can you expect from the Sovereign Gold Bond schemes?
The second tranche of the Sovereign Gold Bond was issued at Rs 2,600 per gram on February 8, 2016. After eight years, it will be maturing in February next year. The Reserve Bank of India (RBI) determines the redemption price of the Sovereign Gold Bond based on the simple average closing price of the gold of 999 purity of the week (Monday-Friday) preceding the maturity date, published by the India Bullion and Jewellers Association (IBJA).
While the actual maturity price of this SGB tranche will be decided based on gold prices from 18 March to 22 March 2024, we can get an estimate by checking the returns based on current gold prices. The simple average closing price of gold for the week of December 11-15, 2023, will be Rs 6,176 per unit, according to the data provided by IBJA.
The RBI will announce the maturity price of the second tranche of the Sovereign Gold Bond closer to its maturity date on March 29, 2024. However, as per our calculation, we are assuming that the gold price will be Rs 6,176 per gramme at the time of maturity.
Added to this, the second tranche of SGB was offered at a fixed interest rate of 2.75% per annum on the initial investment amount. The interest has been paid on a half-yearly basis.
If you have invested Rs 1 lakh in Sovereign Gold Bonds issued at Rs 2,600 per gramme in February 2016, you will get Rs 2.38 lakh at the time of maturity in February next year, including the last semi-annual payout at the rate of 2.75% every year. You would have earned an interest of Rs 1,375 every six months for the entire tenure of eight years.
In terms of XIRR or Extended Internal Rate of Return, the second tranche of the Sovereign Gold Bond will offer 13.44% returns at the current gold price. This will come down or go up if the gold prices fall or rise closer to the maturity date.
During the same period (January 1, 2016 to December 18, 2023), the Nifty50 index has generated around 13.2% returns while large-cap mutual funds have given 13.03% returns.
Returns from the Sovereign Gold Bonds maturing in 2024
SOVEREIGN GOLD BONDS 2.75% FEB 2024 TR-II
SOVEREIGN GOLD BONDS 2.75% MAR 2024 TR-III
SOVEREIGN GOLD BONDS 2.75% AUG 2024 TR-IV
SOVEREIGN GOLD BONDS 2.75% SEP 2024 TR-V
SOVEREIGN GOLD BONDS 2.50% NOV 2024 TR-VI
ISIN
IN0020150101
IN0020150119
IN0020160027
IN0020160043
IN0020160076
Issue Date
8-Feb-16
29-Mar-16
5-Aug-16
30-Sep-16
17-Nov-16
Listing Date
29-Aug-16
29-Aug-16
1-Sep-16
19-Oct-16
9-Dec-16
Issue price (per gram) (Rs)
2,600
2,916 3,119 3,150 3,007
Maturity value (assumed at current price) (Rs)
6,176
6,176
6,176
6,176
6,176
Maturity Date
8-Feb-24
29-Mar-24
5-Aug-24
30-Sep-24
17-Nov-24
Interest Rate
2.75%
2.75%
2.75%
2.75%
2.50%
Interest Frequency
Semi-annually
in August and Feb
Semi-annually
in March and September
Semi-annually
in August and February
Semi Annually
in September and March
Semi-annually
in November and May
XIRR (At current gold price)
13.44%
11.93%
11.06%
10.93%
11.34%
Assumption: XIRR was taken to find the return of SGB investment growth and regular income, returns calculated on current gold prices.
Actual return will vary depending upon maturity price to be declared by RBI closer to maturity date.
Source: ET Wealth Online and Nirav R Karkera, Head - Research, Fisdom
Similarly, the third tranche of the Sovereign Gold Bond was issued at Rs 2,916 per gramme in March 2016. Assuming the maturity price of Rs 6,176 per gramme, your Rs 1 lakh would have grown to Rs 2.13 lakh in eight years. So, you will get 12% returns from your investments.
Should you invest in the Sovereign Gold Bonds?
The latest tranche of the Sovereign Gold Bond 2023-24 series III has opened for subscription on December 18, 2023, and will close on December 22, 2023. What makes the Sovereign Gold Bond a unique investment option? SGB enjoys multiple advantages — a hedge against inflation, a safe-haven asset, and an additional interest rate on your investment. However, do keep in mind that the interest rate is not fixed. After a few initial tranches, the central bank lowered the interest rate to 2.5%.
Moreover, if you invest in SGB online, you will get a discount of Rs 50 per gramme.
It comes with a maturity period of eight years. Investors will get an option to exit the scheme from the fifth year onwards on the interest payment dates.
If you purchase Sovereign Gold Bonds from the secondary market and keep it until maturity in the eighth year, you will be eligible for a 100% capital gains exemption. These investors can also sell their Sovereign Gold Bonds at any time they want. If you sell your SGB bought in the secondary market within three years, you have to pay short-term capital gains. The tax slab will be calculated based on your income. If you sell your Sovereign Gold Bond after three years and before maturity, you need to pay a long-term capital gain of 20% with indexation.
"If one is planning to gift or use gold during marriage and has a time horizon of at least 5 years (although eight years is the lock-in period) then one can explore SGB as a means to buy high purity Gold in electronic form. Indexation benefit, tax-free capital gain, and 2.5% annual interest (interest payout is taxable as per slab) are additional benefits of SGB, depending on one’s holding period and financial goals one can hold 5-10% of their portfolio into SGB," says Abhishek Kumar, a SEBI-registered financial adviser and Founder of SahajMoney.com.
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This story originally appeared on: India Times - Author:Faqs of Insurances
