Why investing in gold bonds is worthwhile

Singapore (Feb 25)  The seventh tranche of Sovereign Gold Bonds (SGBs) have been issued by the government at the price of Rs 2893. It is the fourth series in the current financial year and is open for subscription from February 27 2016 till March 3, 2017.

Before discussing the features of seventh tranche, it is interesting to see how previous tranches of SGBs have performed.  Data shows that of the previous tranches that have already been listed on the exchange, tranche I and II have yielded return close to 2 and 8 per cent. That's not all. After including the fixed return of 2.75 per cent the return for the first two tranches have gone upto 4.75 and 10.75 percent. At the time when fixed deposit are offering you just 6 per cent and endowment policies not offering more than anything between 4-6 per cent, investing in sovereign gold bonds does not look a bad proposition.

The current tranche of SGBs offer fixed return of 2.5 per cent. However, the first five tranches offered 2.75 per cent but when gold prices started moving up, increasing the interest outgo of the government, rates were cut to 2.5 per cent. The fixed rate of return is paid on the initial amount of investment.  To compensate for the reduction in interest rate the government reduced the issue price of the gold bond by Rs 50 per gram than the nominal value.

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