Feb sees gold bond purchase worth ₹8k cr
Indian residents’ appetite for gold bonds knows no bounds, despite the metal hitting record high prices this fiscal year, and stock markets trading at life highs.
In the latest issuance last month, residents subscribed to a record 12.78 tonnes of bonds worth ₹8,008.38 crore, or $966 million, the highestever amount since the first issuance eight years and two months ago, RBI data shows .
The issue price was at a record high of ₹6,263 per gram. Interestingly the consumer appetite for the bonds, which are an alternative to holding physical gold, stood at 44.33 tonnes in FY24, the highest in any fiscal year, according to the data.
Gold in the spot market hit a record high of ₹63,480 per 10 gram (ex-GST) as markets overseas began discounting an interest rate cut in US, said Surendra Mehta, national secretary, India Bullion & Jewellers Association, adding that high prices had crimped demand.
In fact, this fiscal year's (FY24) volumes at 44.33 tonnes account for 31% of the outstanding bonds of 141.88 tonnes. In terms of value the bonds are at ₹27,032 crore, the current fiscal accounts for 38% of ₹71,284 crore cumulative value of issuances.
The first two tranches of 913 kg issued in November 2015 and 2.86 tonnes issued in February 2016 have been redeemed after eight year lock-ins each at a price appreciation of 128% at ₹6,132 (issue price ₹2,684) and 141% at ₹6,271 (₹2,600).
"Tax-free return, added benefit of interest, and elimintion of risks and costs of storage, are the reasons for SGBs' rising demand," Nilesh Shah, MD, Kotak Mahindra AMC, said.
"Gold's appeal as an asset class has reclaimed investor interest," said Nirav Karkera, head of research at Fisdom. "There has always been a strong case for an allocation to the asset class, especially for diversification benefits. SGBs are clearly an efficient and effective instrument for exposure to the asset. Additionally, outlook for gold, over the medium term, is reasonably positive."
In addition to capital appreciation through rising gold prices, investors also get the added benefit of 2.5% simple interest on the issue price of the bond, payable semi-annually. The capital gains are tax free while interest is added to the income and taxed.
The bonds have a lock-in of eight years but early redemption is allowed after fifth year on coupon payment dates.