Eight years later, gold bonds deliver market-like returns
MUMBAI : Sovereign gold bond (SGB) holders are poised to earn handsome returns, closely rivalling those from the stock markets, when the first tranche of bonds issued eight years ago matures on 30 November this year. Against an issue price of ₹2,684 per gramme on 30 November 2015, the closing price of 24-carat gold was ₹5,929 per gm on Friday, translating into a compounded annual growth rate (CAGR) of 12%, including the interest component on the bond’s nominal value, adjusted for tax at the highest income slab of 30%.
Gold rates used are determined by India Bullion and Jewellers Association. Against this, the Nifty Total Returns Index, which includes dividends, generated a 13.82% CAGR, rising from 10,146 to 28,582 between early November 2015 and last Friday.
“The best part about this instrument is that, aside from earning the price difference, there is a component of interest rate on the issue price, making it a unique investment proposition," said Amol Joshi, the founder of PlanRupee Investment Services. Joshi said gold enjoys a twin advantage of being a hedge against inflation and a safe haven asset, which, along with international equities, should form the “satellite portion of the core portfolio of equities and debt".
“My recommendation is that 15% of a portfolio should comprise international equities and gold investment through SGB, which is a way better investment than that in physical gold." Gold bonds have been highly successful, with SGBs backed by a cumulative 109 tonnes of gold being subscribed over the past eight years. At the current price of ₹5,929 per gm, the value of the outstanding bonds is ₹64,650.5 crore against net assets held by gold ETFs of ₹22,339 crore as of June-end.
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