Sparkling returns for gold bond investors this Diwali

livemint.com:

₹300-crore Diwali bonanza awaits investors in the first tranche of sovereign gold bonds (SGBs) that took off modestly eight years ago but have since enamoured investors with returns rivalling those of stock markets. On 30 November 2015, the Reserve Bank of India (RBI) issued the first tranche of 914 kg of gold bonds on behalf of the government. Of these, investors have so far redeemed 54 kg, leaving around 860 kg outstanding.

Now, the bonds are up for redemption, with returns on a par with stocks, if the interest component on these bonds is added to their capital gains. Against an issue price of ₹2,684 per gram, the current rate of 24-carat gold is above ₹6,100, implying an annualized return of 10.92%. However, to sweeten the scheme, the government has added a simple interest of 2.75% on the issue price.

Together, the annualized return works out to 12.99%, according to Amol Joshi, founder of PlanRupee Investment Services. During the same period, the Nifty Total Return Index, which captures both capital appreciation and dividends, was up 13%. The redemption price of these bonds is based on the simple average closing price of 24-carat gold across three previous business days from the date of redemption, as published by trade body India Bullion and Jewellers Association.

The capital gain, which is tax-free at redemption, and the interest component, which is taxable, together make it a winner for investors, Joshi said. “SGBs are a gold investment product of choice for all gold investments except for physical gold that you will be using for actual consumption in the form of jewellery." So far, bonds for 120.58 tonnes of gold worth ₹56,328 crore have been issued in tranches. Interest in the gold bonds rose in subsequent