Saral Gyan Team wishes you Happy Dhanteras!
The festival of Dhanteras falls in the month of Kartik (Oct-Nov) on the thirteenth day of the dark fortnight. This auspicious day is celebrated two days before the festival of lights, Diwali.
Advantage of Sovereign Gold Bond (SGB) over Gold ETF
How do SGBs compare to ETFs? One area where the SGBs score over gold ETFs is the sovereign guarantee. The government guarantee is applicable both on the redemption amount and on the interest.
Gold ETFs are offered by private sector AMCs and do not have that kind of advantage. But do note that the sovereign guarantee here does not shield investors' capital from volatile gold prices. Both the value of your SGB and the value of your ETF swing up and down with market prices of gold during your holding period.
Secondly, SGBs pay you an assured interest over and above the price returns on gold. Gold ETFs do not give you that comfort and rely only on price returns. Gold bonds offer 2.75% per annum (paid half-yearly) on the initial investment. Thus, investors earn returns linked to the gold price (just like in gold ETFs) plus a fixed annual interest income. The tenure of gold bonds is 8 years but exit options are available in the 5th, 6th and 7th year.
Unlike gold exchange-traded funds (ETFs), the bonds will not be backed by gold but a sovereign guarantee. The bonds are issued by Reserve Bank of India on behalf of the government, denominated in grams and sold through banks and designated post offices.
The sixth tranche of SGB will remain open for subscription till November 2, 2016. The nominal value of these bonds was fixed at Rs 3,007 per gram. However, the government decided to offer a discount of Rs 50 per gram, so that the effective issue price works out to Rs 2,957 per gram. The bonds will be issued on November 17, 2016. They will have a tenure of eight years and will allow exit from the fifth year. The interest rate on this tranche has been reduced from 2.75 per cent earlier to 2.50 per cent of the nominal value.
This Dhanteras, think different and make an auspicious beginning!
Gold comprises the bulk of India's total imports with close to 900 to 950 tonnes of gold imported every year. It is estimated that close to 23,000 tonnes of gold is lying in Indian household. If the ideal gold is deposited with banks, it will enable banks to lend it to jewellers, thereby reducing demand to import gold.
After giving negative returns in the previous three calendar years (2013-2015), gold has rallied around 20 per cent in the Indian market year-to-date. Having run up so much, there is a question mark on whether the yellow metal can repeat its stellar performance in the near term. The possibility of one Fed rate hike this year, and a couple more in 2017, also casts doubt on the yellow metal's prospects in the short term.
Also Read: Diwali Muhurat Picks 2016 - 10 Best Stocks of Saral Gyan
Wish you happy & safe investing!
Team - Saral Gyan