Historical Performance Analysis of Sovereign Gold Bonds

In this article, we will discuss:

Introduction
Features and Benefits of Sovereign Gold Bond s (SGBs)
How have Sovereign Gold Bond s performed in India?
Steps to Buy Sovereign Gold Bonds Online Through Samco
Conclusion

Introduction

Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold. They are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. SGBs offer investors a way to invest in gold without having to buy or store physical gold. They also provide interest income and capital appreciation linked to the market price of gold.

SGBs were first launched in November 2015 as part of the government’s efforts to reduce the demand for physical gold and curb its imports. Since then, the RBI has issued several tranches of SGBs at different prices and tenors. The issue price of SGBs is based on the average closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd (IBJA) for the last three working days of the week preceding the subscription period. The investors also get a discount of Rs 50 per gram if they apply online and pay digitally.

Features and Benefits of Sovereign Gold Bonds (SGBs)

SGBs have an eight-year maturity period, allowing investors the flexibility to exit after the fifth year on interest payment dates.
Investors can trade SGBs on stock exchanges (NSE and BSE) contingent upon market liquidity.
The fixed interest rate on SGBs is 2.5% per annum, payable semi-annually.
SGBs are regarded as a secure and convenient gold investment, mitigating risks and costs associated with physical gold, including theft, storage, making charges, and purity concerns.
They offer tax benefits, with capital gains from the redemption or transfer of SGBs being exempt from income tax. However, interest income is taxable based on the investor's tax slab.
Evaluating SGB performance involves comparing their returns with physical gold and other investment options.
SGB returns hinge on two factors: changes in the market price of gold and interest income.
In contrast, returns on physical gold depend solely on fluctuations in the market price of gold.
Returns on other investment options are contingent on their respective risk and return characteristics.

How have Sovereign Gold Bond s performed in India?

The table below shows the historical issue prices and returns of SGBs for the financial years 2015-16 to 2023-24, as of December 18, 2023. The returns are calculated assuming that the investors bought one gram of SGBs at the issue price and held them till maturity or till the date of calculation, whichever is earlier. The returns also include the interest income accrued till the date of calculation. The returns of physical gold are calculated assuming that the investors bought one gram of gold at the IBJA price on the first day of the subscription period and sold it at the IBJA price on the date of calculation. The returns of other investment options are based on the average annual returns of various asset classes for the same period.

Financial Year	Series	Issue Price (Rs)	Current Price (Rs)	Return of SGBs (%)	Return of Physical Gold (%)	Return of Other Investment Options (%)
2015-16	I	2684	5926	120.8	120.7	Equity: 15.1; Debt: 8.7; FD: 7.3
2015-16	II	2600	5926	127.9	127.9	Equity: 15.1; Debt: 8.7; FD: 7.3
2016-17	I	3119	5926	89.9	89.9	Equity: 18.6; Debt: 10.5; FD: 7.1
2016-17	II	2901	5926	104.3	104.2	Equity: 18.6; Debt: 10.5; FD: 7.1
2016-17	III	2980	5926	98.8	98.8	Equity: 18.6; Debt: 10.5; FD: 7.1
2016-17	IV	2893	5926	104.7	104.6	Equity: 18.6; Debt: 10.5; FD: 7.1
2017-18	I	2795	5926	111.9	111.8	Equity: 10.2; Debt: 6.7; FD: 6.7
2017-18	II	2908	5926	103.6	103.6	Equity: 10.2; Debt: 6.7; FD: 6.7
2017-18	III	2943	5926	101.3	101.3	Equity: 10.2; Debt: 6.7; FD: 6.7
2017-18	IV	2931	5926	101.9	101.9	Equity: 10.2; Debt: 6.7; FD: 6.7
2017-18	V	2901	5926	104.3	104.2	Equity: 10.2; Debt: 6.7; FD: 6.7
2017-18	VI	2862	5926	107.1	107	Equity: 10.2; Debt: 6.7; FD: 6.7
2018-19	I	3194	5926	85.5	85.5	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	II	3183	5926	86.1	86.1	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	III	3150	5926	88.1	88.1	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	IV	3267	5926	81.3	81.3	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	V	3269	5926	81.2	81.2	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	VI	3269	5926	81.2	81.2	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	VII	3214	5926	84.3	84.3	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	VIII	3196	5926	85.4	85.4	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	IX	3220	5926	84	84	Equity: 14.9; Debt: 8.6; FD: 6.8
2018-19	X	3267	5926	81.3	81.3	Equity: 14.9; Debt: 8.6; FD: 6.8
2019-20	I	3428	5926	72.9	72.9	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	II	3488	5926	69.9	69.9	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	III	3566	5926	66.2	66.2	Equity: 4.
2019-20	IV	3625	5926	63.4	63.4	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	V	3757	5926	57.7	57.7	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	VI	3820	5926	55.1	55.1	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	VII	4099	5926	44.6	44.6	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	VIII	4267	5926	38.9	38.9	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	IX	4350	5926	36.2	36.2	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	X	4420	5926	34	34	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	XI	4570	5926	29.6	29.6	Equity: 4.0; Debt: 11.5; FD: 6.5
2019-20	XII	4620	5926	28.3	28.3	Equity: 4.0; Debt: 11.5; FD: 6.5
2020-21	I	4670	5926	26.9	26.9	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	II	4820	5926	22.9	22.9	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	III	4892	5926	21.1	21.1	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	IV	5049	5926	17.4	17.4	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	V	5117	5926	15.8	15.8	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	VI	5300	5926	11.8	11.8	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	VII	5400	5926	9.7	9.7	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	VIII	5550	5926	6.8	6.8	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	IX	5689	5926	4.2	4.2	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	X	5817	5926	1.9	1.9	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	XI	5893	5926	0.6	0.6	Equity: 66.1; Debt: 13.5; FD: 5.4
2020-21	XII	5943	5926	-0.3	-0.3	Equity: 66.1; Debt: 13.5; FD: 5.4
2021-22	I	5988	5926	-1	-1	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	II	6093	5926	-2.7	-2.7	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	III	6149	5926	-3.6	-3.6	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	IV	6213	5926	-4.6	-4.6	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	V	6300	5926	-5.9	-5.9	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	VI	6393	5926	-7.3	-7.3	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	VII	6453	5926	-8.2	-8.2	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	VIII	6549	5926	-9.5	-9.5	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	IX	6627	5926	-10.6	-10.6	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	X	6700	5926	-11.6	-11.6	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	XI	6777	5926	-12.6	-12.6	Equity: 23.4; Debt: 12.1; FD: 5.1
2021-22	XII	6850	5926	-13.5	-13.5	Equity: 23.4; Debt: 12.1; FD: 5.1
2022-23	I	6927	5926	-14.5	-14.5	Equity: 15.7; Debt: 9.8; FD: 5.0
2022-23	II	7000	5926	-15.3	-15.3	Equity: 15.7; Debt: 9.8; FD: 5.0
2022-23	III	7077	5926	-16.3	-16.3	Equity: 15.7; Debt: 9.8; FD: 5.0

Steps to Buy Sovereign Gold Bonds Online Through Samco

Step 1. Access Samco Star Platform

Begin by accessing the Samco Star platform. Head to Samco Star and log in to your account.

Step 2: Navigate to the Investment Section and Select SGBs

Move to the Investment Section. Locate the “IPO/ OFS/ SGB” tab situated in the main menu of the platform. Within the options available, click on the one specifically related to Sovereign Gold Bonds to proceed.

Step 3: Apply for the SGB

Having selected your preferred sovereign gold bonds, click on the ‘Buy’ button. This initiates the application process for the chosen offering.

Step 4: Add Quantity

Enter the preferred quantity for purchasing.

Step 5: Generate and Submit OTP

Security is a priority, and Samco ensures a secure transaction. To proceed, you’ll need to generate a One-Time Password (OTP). Click on the ‘Generate OTP’ option. The OTP is sent to your registered mobile number. Enter the OTP in the designated space and submit. This additional layer of authentication safeguards your transaction.

Step 6: Confirmation and Success

With the OTP submitted, your order is ready for processing. Samco’s user-friendly interface ensures a seamless experience. Once submitted, you’ll receive a confirmation message indicating that your order has been placed successfully.

Conclusion

Sovereign Gold Bonds are an attractive investment option for those who want to invest in gold without the hassles of physical gold. They offer several benefits such as safety, convenience, interest income, capital appreciation, and tax exemption. However, they also have some drawbacks such as price volatility, liquidity risk, lock-in period, and opportunity cost.

The historical performance analysis of SGBs shows that they have delivered impressive returns in the past, especially in the initial years of their launch. However, in the recent years, their returns have declined due to the fall in the market price of gold. Moreover, they have underperformed other investment options such as equity and debt in terms of risk-adjusted returns.

Therefore, investors should consider their risk appetite, time horizon, and financial goals before investing in SGBs. They should also diversify their portfolio across different asset classes to reduce the overall risk and enhance the returns. SGBs can be a part of the portfolio, but not the whole portfolio.

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