Bond with gold: Get the benefits of yellow metal minus the hassles
This has led to India being among the world’s largest consumers of the yellow metal with an annual demand of nearly 1,000 tonnes. Gold demand in India jumped 37 per cent to 167.4 tonnes from 122.1 tonnes during the second quarter (April-June) of 2017, buoyed by seasonal demand and improved rural sentiment.
In September 2017, gold imports rose 31 per cent from a year ago in view of the festive season in October. With such buoyancy in demand, gold imports surged and India’s current account deficit soared to a four-year high of $14.3 billion, or 2.4 per cent of GDP, in FY2017. Higher imports also widen the trade deficit.
Oil is the largest contributor to the deficit, but gold is a close second. Since 2013, the government has put in various measures to curb imports. It has introduced various gold schemes as an innovative initiative to reduce gold imports and bring all the precious metals lying idle with individuals to be used as an easily accessible financial asset in the economy.
The long-term implications of this would be a reduction in gold imports for lowering of the current account deficit and trade deficit. The first, a gold monetization scheme, is aimed at ‘monetising’ India’s massive stock of physical gold, whereas the second sovereign gold bond (SGB) scheme intends to convert the investment demand for physical gold into paper or electronic demand. Under the first scheme, the focus was more on recycling existing reserves of gold by including that in the formal financial system. The case with the SGBs is, however, much simpler and least dependent on physical gold holding.
Here, the SGB passively tracks gold price and hence provides an investment equivalent to holding physical gold. In addition, SGBs offer many more advantages.
Issued by the Reserve Bank of India on behalf of the Government of India, SGBs are government securities denominated in grams of gold. They are investment in gold that does not involve the jewellery, coin or bar, but is done in digital form. This not only raises the safety quotient but gives return as much as physical gold.
Moreover, SGBs yield an interest rate of 2.5 per cent payable half-yearly, and they attract no capital gains tax on redemption after eight years. Long-term capital gains are attracted if you sell in the market, but with indexation benefits, which means the effective rate of tax will be lower. The gold bond is neither an investment in physical gold nor is it like any other financial bond, but a fusion product that gives the benefits of both.
Additionally, there is no chance of cheating or impurities in gold bond, as it is 100% pure, giving 100% value. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGBs can also be used as collateral to take a bank loan. In this regard, a gold bond is similar to a national savings certificate of post office. Though the tenor of the bond is eight years, early encashment or redemption is allowed after the fifth year from the date of issue on coupon payment dates.
For investors, who wish to sell these bonds before maturity, they are tradable in secondary markets at stock exchanges like BSE if held in the demat form.
SGBs undisputedly offer a superior alternative to holding gold in physical form. From this gold trilogy, while the sentiment aspect cannot be removed or substituted, it is prudent for investors to choose SGBs as ‘the’ asset category that can provide liquidity and return similar to gold when used as the money for last resort and also as a hedge against inflation.
It provides price transparency and liquidity. Hence for investors seeking long-term investment in gold SGBs should be the preferred channel.
https://economictimes.indiatimes.com/markets/stocks/news/bond-with-gold-get-the-benefits-of-yellow-metal-minus-the-hassles/articleshow/61338768.cms
Tidak ada komentar