Sovereign Gold Bonds (SGBs) are an attractive investment proposition for individuals willing to invest in gold without the risks of physical storage. These government-backed securities ensure the trust and safety of the investment. With the Reserve Bank of India (RBI) releasing SGB 2023-24 series II for purchase from September 11, 2023, to September 15, the question arises: can investors buy SGB series I at a lower rate?
While SGB Series II’s nominal value is Rs 5,923 per gram of gold, SGB Series I, which closed on June 23, was priced at Rs 5,926 per gm in the primary market.
Tejas Khoday, co-founder and CEO of FYERS, said, “In short, No! The SGBs are issued by the RBI in different series throughout the year, each with a specific subscription period issue price, and they offer an annual interest of 2.5 per cent on the nominal value, paid semi-annually. Investors can only buy the SGBs currently open for subscription, and once a series of SGBs are closed, it is no longer available for purchase in the primary market. Therefore, one cannot buy the previous series in the primary market, such as the SGB 2023-24 Series-1, as the subscription period is over in June.”
Can you buy SGBs from the secondary market? The SGB series I was open for subscription from June 19 to June 23, 2023. Like equity shares, SGBs are tradable on stock exchanges within a fortnight of the issuance by the RBI. Investors who missed their opportunity to buy directly from the government or those who want to purchase the bonds at potentially lower rates can turn to the secondary market.
SGB returns depend on gold prices prevalent on maturity or premature exit if held in demat form. Currently, there are 63 series of SGBs listed in the secondary market.
“Investors interested in buying or selling the previous series of SGBs can do it through the secondary market subject to liquidity. The market price of SGBs may vary depending on the demand and supply and the prevailing price of gold. Therefore, investors may have to wait for their desired price in the secondary market,” said Khoday.
It must be emphasized, however, that the pricing on the secondary market is not determined by the government but by market dynamics. This means prices could be lower or higher than the original issue price, depending on demand and supply.
“The investor should also be mindful that the daily volumes on the secondary market are still not more than Rs 5-10 crore. Thus, it may take a while to sell the units,” said Ajinkya Kulkarni, CEO and Co-founder of online bond-trading platform Wint Wealth.
Investors should be aware that despite the fluctuating prices, the value of gold backing the bond remains constant. Ultimately, the decision to buy SGB series I or II from the government or secondary market should align with the investor's financial goals, risk appetite, and market conditions.
While investing in SGBs guarantees returns and security, it also requires careful planning and understanding of gold price trends and market forces. One must consider seeking expert advice before taking any steps towards investment in SGBs.
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