Gold bond early redemption window opens today — if you don’t need the money now, stay invested

• RBI has opened a premature redemption window for sale of tranche 2 and tranche 4 of sovereign gold bonds (SGB), which were issued in 2016-17.
• Commodity experts believe gold will continue to remain as investors' safe haven.
• Sovereign gold bonds are backed by the government and hence are considered to be safer for investment.

On August 4, the Reserve Bank of India (RBI) announced an opening of a premature redemption window for sale of second and fourth tranche of sovereign gold bonds (SGB), which were issued in 2016-17.

SGB is a substitute to physical gold and a paper issued by the government denominated in terms of grams of gold. Basically, SGBs give investors an exposure to gold, but not in a physical form like gold bars or jewellery.

The tenor of the SGB is eight years, however, if the investors want to withdraw the bond before this period, then the facility is available after the fifth year from the date of issue on coupon payment dates.

Those who hold the bond in the demat account can trade it on National Stock Exchange (NSE) and BSE. Others can approach their agent, bank, post office or Stock Holding Corporation of India limited (SHCIL) office in case of premature redemption.

On Thursday August 5, on the multi commodity exchange, gold futures were down moderately at ₹47,888 per 10 gram. In the last three months from May 3 to August 3, gold futures on MCX have gained 1.05% in rupee terms.

Overall, SGBs are backed by the government and hence are considered to be safer for investment.

However, commodity experts believe that going ahead gold will continue to gain in value.

“A stronger US Dollar ahead of key US economic data due later in the week might continue to weigh on gold prices; however, rising cases of the Delta variant of the COVID-19 virus is expected to keep the demand for the safe haven elevated,” said Prathamesh Mallya, assistant vice president of research, non-agri commodities and currencies at broking firm Angel Broking.

When the dollar gains value ⁠— all other factors remaining the same ⁠— the international price of gold, pegged in dollar terms, falls.

“Right now there is enough liquidity in the market to sell every gold bond. So there is no point selling it prematurely. If one is trying to play the gold market saying if it goes up I will sell and if it comes down I will buy then they are better off in exchange traded funds (ETFs). SGBs are meant for investors and not traders. Traders are better off in an ETF,” said P V Subramanyam, Mumbai-based financial trainer, author and blogger.

An ETF is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock.

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