Sovereign Gold Bond SGB 2022-23 (Series III): Should You Invest?

The latest tranche of Sovereign Gold Bonds 2022-23 has been launched. This is the 3rd tranche of the Financial Year 2022-23, i.e. this is Sovereign Gold Bond Scheme FY 2022-23 Series 3 (or Series III).

And just to give you a briefer about these gold bonds, the SGBs are government-backed securities denominated in grams (gms) of gold. They were launched to act as substitutes of holding physical gold. The Gold Bonds are issued by Reserve Bank of Indian (RBI) on behalf of Government of India. At the time of opening of subscription, the investors have to pay the issue price of the series.

Sovereign Gold Bond Scheme 2022-23 (Series 3)

So here are few important points about the latest series 3 of Sovereign Gold Bond FY 2022-23:

  • Subscription Date – The Sovereign Gold Bond Scheme 2020-21 – Series 3 will be open for subscription from 19-23 December 2022.
  • Issue Date – After the closure of subscription window for SGB 2022, the gold bonds will be issued to investors on 27 Dec 2022.
  • Issue Price – The issue price of SGB 2022-23 Series 3 has been fixed at Rs 5409 per gram of gold. A discount of Rs 50 per gram will be offered to those applying online and making payment through digital mode. For them, the issue price of gold bond will be Rs 5359 per gram of gold. If you are curious about how the issue price is decided, then know that the price of each series (tranche) of gold bond is fixed on the basis of simple average of the closing price of gold of 999 purity for the last 3 working days of the week preceding the subscription period (in INR terms). More details of issu price here on RBI webiste. And if you are interested, then do check the full history of gold bond prices in India.
  • Tenure of Gold Bond – The tenure of the Sovereign Gold Bond 2022-23 Series III is 8 years. However, these have an exit option after the 5th year and this option can be exercised on the interest payment dates. So if an investor wants, they can take the exit option on the interest payment dates of the 6th, 7th year too. But no redemptions allowed before 5th year. What will be the redemption price? It will be approximately equal to the simple average of the closing price of gold of 999 purity during the previous week.
  • How to redeem Sovereign Gold Bond Scheme FY 2022-23 Series 3 before 5 years? The gold bonds become tradeable on stock exchanges within a fortnight of the issuance (subject to liquidity). So if an investor wants to exit before 5th year too, then the gold bonds can be sold in the secondary market before the 5th year too for those looking to sell gold bonds before 5 years. But do note that the market price of sovereign gold bond today or gold bond rate today may be higher or lower than the issue price for any of the tranches. Read more about premature liquidation of gold bonds.
  • Interest Rate on Gold Bond FY 2022-23 Series 3 – The Sovereign Gold Bonds pay a fixed interest rate of 2.50% per annum payable semi-annually on the original investment value. Do note that 2.5% interest will be paid on the original investment amount and not the current value of your investments. So if you invested at Rs 5000 but the current value is Rs 5200, then interest will be paid on Rs 5000 which is the initial investment amount.
  • Minimum Investment in Sovereign Gold Bond (2022-23) Series 3? The minimum investment of 1 gram of gold is required.
  • Maximum Investment in Sovereign Gold Bond (2022-23) Series 3? The maximum investment or subscription is 4 kgs per person per financial year. Do note that this annual investment limit is combined limit for all investment under different tranches and those purchased via the secondary market.
  • Who can invest in Gold Bond FY 2022-23 Series 3? The Gold bonds scheme FY2022-23 is available only for Resident Indians. So that is your answer to Who can invest in sovereign gold bond 2022-23. NRIs cannot invest in the Sovereign Gold Bond Scheme FY 2022-23 Series 3 or SGB 2022 Series III.
  • Taxation of Interest Income from Sovereign Gold Bond Scheme FY 2022-23 Series 3? The 2.5% Interest Income from Gold Bonds is taxable as per the income tax slab. So for someone in 10%, 20%, or 30% tax bracket, the pre-tax 2.5% returns will be converted into the post-tax return of 2.25%, 2% and 1.75% respectively.
  • Taxation of Capital Gains from Sovereign Gold Bond Scheme FY 2022-23 Series 3? If you redeem the SGB series Gold Bond after the 5th year, i.e. once you become eligible to redeem it at the end of 6th, 7th and 8th year, then any capital gain arising due to redemption after the 5th year is exempted from any tax. No tax on capital gains after the 5th year redemptions. But if you wish to exit before 5th year and sell on stock exchange / secondary market, then the gains will be considered as capital gains. This sale itself has two aspects. First is if you sell before 3 years (36 months) and have capital gains, then such capital gain will be taxed as per your income tax slab. But if you sell the bonds after 3 years but before maturity, then any capital gain arising will be taxed at 20% with indexation. Read more about the latest rules for Taxation of Gold Bonds in India.
  • How to buy Sovereign Gold Bond Scheme 2022-23 Series 3? The gold bonds will be sold and can be purchased via scheduled commercial banks, i.e., you can buy sovereign gold bond online ICICI or you can also buy sovereign gold bond online SBI. You can even buy RBI Gold bonds at designated post offices. Stock Holding Corporation of India Ltd. (SHCIL), stock exchanges like NSE, BSE.

So that was about the Series 3 of Gold Bonds 2023.

The sovereign gold bond scheme was launched in 2015 with the aim of reducing the demand for physical gold in India. And for this, a unique additional interest (2.5% per annum) was offered to make it attractive. So the Sovereign Gold Bond Scheme 2022-23 Series III has 2 streams of income. The first is the fixed interest of 2.5% per annum paid semi-annually. The second is the potential for capital gains in future.

Should you invest in Sovereign Gold Bond 2022-23 Series 3?

Gold is generally treated as a safe haven asset. Many people are confused about how much to invest in gold. Do read the article in the link earlier to know what is right for you.

SGB 2022-23 (Series 3) or for that matter any gold instrument (gold ETF, gold funds, etc.) should be part of the overall asset allocation strategy. One should never invest in any asset or product randomly. Do note that gold is best taken as a hedge as every now and then, the gold prices are prone to fluctuations based on macro or geo-political events globally as well as USDINR rate movements. But in general and for most investors, the gold allocation should be limited to up to 10% of the portfolio size.

The Sovereign Gold Bond Scheme 2022-23 Series 3 not only allows investors to benefit from the capital appreciation but also pay a fixed interest on the holding. No doubt about that. But the Sovereign Gold Bonds (SGB 2022) are best suited those with a longer investment horizon, as these gold bonds come with a long tenure, i.e. 8 years. No doubt you can exit via secondary sale on stock exchanges too. But the liquidity is very limited in the secondary market for gold bonds. So those who want to invest for the short-to-medium term, it’s better to take the Gold ETFs or Gold mutual funds route.

That’s all you wanted to know about Series 3 of SGB 2022 (Sovereign Gold Bonds FY 2022-23). I hope you have understood the gold bond rates and found this discussion on features of the latest Sovereign Gold Bonds FY 2022-23 Series 3 (December 2022).

Further Readings –

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