Sovereign gold bonds open for subscription; here's what makes it an attractive investment

The ninth tranche (IXth) of the Sovereign Gold Bond (SGB) scheme for 2020-21 opened for subscription on Monday. The issue price for the same has been fixed at Rs 5,000 per gram of the yellow metal. Online subscribers can, however, secure these bonds at a discount of Rs 50 per gram.

This subscription of bonds will close on January 1, 2021, and the settlement date for the same is January 5, 2021, as per the Reserve Bank of India (RBI).

According to Nish Bhatt, founder and CEO, Millwood Kane International, the government has seen good demand for SGB throughout the year. As per an estimate, the RBI has helped the government raise nearly Rs 23,000 crore in the past 5 years.

“SGB is one of the favorite routes for retail investors looking to take exposure in gold. There is a dual benefit in investing in SGB as investors stand to gain 2.5 percent per annum fixed interest on their investment and the rise in the value of gold once the bond is redeemed,” he explains.

Additionally, with SGBs, investors are not required to worry about the storage of gold as it is in a demat form. Also, there are no local taxes that a buyer needs to pay while buying.

Talking about the performance of gold in 2020, Bhatt tells that yellow metal has had a phenomenal year, with gains of nearly 28 percent in rupee terms (YTD).

After a double-digit gain in 2019, this will be the second year in a row that gold will be posting a stellar rise.

As we approach 2021, Bhatt believes that gold will remain in focus for investors, as central banks across the globe have pledged to keep rates low, and easy liquidity to aid growth. The latest installment of the stimulus package from the US government will add to the existing dollar liquidity in the system and may end up weakening the greenback.

“The efficacy of the vaccine, proper implementation of the vaccination process in developing countries, low-interest rate regime, and the global central bank's stance on liquidity will guide gold prices in 2021,” he expects.

Vaibhav Saraf, director, Aisshpra Gems also expects the momentum to continue in 2021.

"The weakening dollar is also helping gold rally. The gradual pace of economic recovery also means that an elevated gold environment is to stay for a few years at the least,” he believes.

As per Snehal Choksey, director, Shobha Shringar Jewellers, the bull run that has started will touch $2,400 per tory oz. in the long term.

The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.