The Reserve
Bank of India (RBI) issues the fifth tranche of sovereign gold bonds (SGBs) for
this financial year on Monday, August 9. The SGBs will be issued to investors
at Rs 4,790 per bond. Every single bond tracks the price of one gram of gold.

The fifth
tranche window will be open for investors from August 9 to August 13.

Investors
who apply for the SGBs using digital payments will get a Rs 50 discount and get
the bonds at Rs 4,740 each.

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Investors
in sovereign gold bonds will receive 2.5% interest payable half-yearly. The
bonds are listed on the stock exchanges and at the time of maturity the Reserve
Bank will pay the prevailing value of gold.

According
to market experts, SGBs are a good investment for long-term investors as they
receive interest and capital gains are tax-free if the bonds are held on till
maturity.

A sovereign
gold bond has a tenure of eight years. Investors have the option to exit after
five years on every interest payment date.

What
distinguishes gold bonds from other ways of buying digital/paper gold is that
while other methods of gold-buying, such as through exchange traded fund (ETF)
and gold fund of funds, charge an expense of nearly 0.5% every year, SGBs have
no costs associated with them.

However,
the one problem with sovereign gold bonds is that they are not very liquid.
Bonds in many series either do not trade or trade at a discount to the spot
prices on the stock exchange. Although, the average volumes traded have been
rising gradually.

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Owing to
the increased demand in the recent past, SGBs are currently trading at a slight
premium to the spot prices of gold issued by the Indian Bullion Jewellers
Association (IBJA).

The one
reason why investors find gold bonds exciting is because gold is a hedge
against inflation over the long term. RBI has increased its inflation estimate
to 5.7% for financial year 2022. As a result, with the country inching towards
a higher inflationary period, gold bonds are set to attract more and more
investors over time.