Mumbai: Sovereign gold bonds are likely to excel over other investment products such as gold exchange traded funds and physical bars, says a report. The Sovereign Gold Bond Scheme (SGBS) may address pure investment demand for the yellow metal and is easy to implement relative to the gold monetisation scheme, the India Ratings report said.
It said the successful launch of this product may ensure that physical gold is used mostly for manufacturing jewellery, and gold bonds for investments. Investors of gold bars or coins may find gold sovereign bonds a better investment than holding a physical stock because it will offer the benefit of gold without any handling and storage costs, it pointed out.
It will relieve investors of the need to check the quality of gold and with valuation and these bonds can also be easier to use as collateral. As the counterpart is the government, it will take the risk of higher prices and if they fall, the investor would be given an option to roll over their holdings for an additional period, the report noted.
However, the sovereign gold bonds are beneficial only if bought for investment purposes. The Sovereign Gold Bonds will offer an interest rate of 2.75 per cent and will remain open for public subscription between November 5-20.
The gold bond scheme will offer investors a choice to buy bonds worth 2 grams of gold, up to a maximum of 500 grams, requiring certain minimum investment. Ind-Ra said it could that mean small investors may not be able to take advantage of this scheme unlike the case with gold exchange traded funds or gold mutual funds. In case of sovereign gold bonds, both upside gains and downside risks will be with the investor.
However, in case gold prices fall, losses from a systematic investment plan in gold exchange traded funds or gold mutual funds will be lower than for lump sum investments in sovereign gold bonds, it added.