Sovereign Gold Bonds A Smart Choice for Gold Investments
MAY 2021 WHY INVEST IN GOLD ?
Safe Haven during Upside Potential due to Portfolio Easy Liquidity & No Economic Turmoil Inherent Demand Diversification Credit Risk
Hedge against Inflation Low/negative Low/negative Bond QE & B/S expansion by & Currency Correlation to other Yields and Real Rates Central Banks Depreciation Assets LONG TERM PERFORMANCE OF GOLD ($)
Consolidation from 1700 2016-2018
1300 20 year long Consolidation 900
500
100
Jul-96 Jul-11 Jul-75 Jul-78 Jul-81 Jul-84 Jul-87 Jul-90 Jul-93 Jul-99 Jul-02 Jul-05 Jul-08 Jul-14 Jul-17 Jul-20
Global prices ($/ounce)
• Annualised long term Gold return since 1970s in US$ terms is ~3.3% • In $ terms, Gold return is non-linear. It is marked by periodic up move followed by long period of consolidation
Source: I-Sec Research LONG TERM PERFORMANCE OF GOLD (₹)
50000
40000
30000
20000
10000
0
Jul-99 Jul-14 Jul-17 Jul-75 Jul-78 Jul-81 Jul-84 Jul-87 Jul-90 Jul-93 Jul-96 Jul-02 Jul-05 Jul-08 Jul-11 Jul-20
Indian Gold (Derived)
• While Gold has compounded at 3.3% in $ terms since 1970s, Gold Rolling 1 Yr 5 Yrs. 8 Yrs. in ₹ terms, Gold has delivered 8.8% CAGR aided by rupee Returns depreciation and strong domestic demand. Min -33% -42% -7%
Mean 13% 79% 139% • The average 8 yr rolling return for Gold since 1974 in absolute terms is ~139% Max 251% 379% 425%
Source: I-Sec Research WHY GOLD NOW?
4.0% One Month 1.7% Massive Sell-off in EQ Markets 2.0% 0.9% An unprecedented lockdown of many 0.0% cities around the world to prevent the -2.0% -0.7% -1.6% spread of Covid-19 and its all- -4.0% -2.6%-2.4%-2.3% -3.6%-3.4%-3.3%-3.1% encompassing impact on the global -6.0% -5.0%-4.7% economy has sent capital markets into -5.7%-5.7%-5.3%
-8.0% -7.5%-7.2% a tailspin
UK
US
India
Brazil
China
Japan
Russia
Turkey
Taiwan
Thailand
Australia
Eurozone
Phillipines
Index
South Africa South
South Korea South
Indonesia Index Indonesia
Malaysian Index Malaysian Emerging Market Emerging
160 Interest Rate Cut & Massive QE 140 Consequently, Central bankers across 120 the world have resorted to unprecedented 100 monetary policies from cutting interest 80 rates to near zero level to massive 60 quantitative easing. 40 20 0 US Saudi Arabia Canada England Brazil Australia
Source: I-Sec Research WHY GOLD NOW?
Central Banks Demand for Gold Global central banks are looking to diversify their holdings by adding Gold. Central bank net purchases crossed 650 tn. in 2018, 74% higher than 2017. In 2019, gold buying by central banks continued and reached another all-time levels of 668 tn.
4000 Gold ETF Holdings at new highs 3000 Gold ETF AUM is at a record high as 2000
investors sought safety from recent 1000
weakness in equities and worries about 0
the Covid-19 virus hurting the global
2015 2010 2018 2017 2016 2014 2013 2012 2011 2009 2008 2007 2006 2005 2004 2003 economy. AUM rose to a record high of 2019
US$157 bn at end of Feb 2020. (June) 2020 Tonnes
Source: I-Sec Research OUTLOOK FOR GOLD
• Gold has been the biggest gainer in 2020 with investors worried about global growth and risk aversion leading to almost zero interest rates in developed economies, in the face of sharply rising COVID-19 cases worldwide. • Since the performance of gold has a negative correlation with equities and debt, adding gold to portfolio can result in portfolio diversification. • Gold has delivered a return of 16.8% CYTD as on June 29, 2020 in USD terms after delivering 18.4% last year, its best performance since 2010. • Rupee has depreciated 5.6% CYTD as on June 29, 2020, but from Real Effective exchange rate(REER) basis, despite the depreciation, it is still overvalued. • Given the current scenario, any dip in gold should be used to buy. We continue to recommend 10% allocation of gold in overall portfolio (5% in core allocation and 5% in tactical allocation). Core allocation can be done through Sovereign gold bonds and tactical allocation can be done through ETFs. • Link to Idirect Report on SGB - https://www.icicidirect.com/mailimages/IDirect_SovereignGoldBond_Aug20.pdf
Source: I-Sec Research INVESTMENT OPTIONS IN GOLD
Physical Gold Gold ETF
Sovereign
Digital Gold Gold Bonds
Source: I-Sec Research PRESENTING SOVEREIGN GOLD BONDS
Issued by RBI on behalf of Government of India
Government security denominated in gram(s) of gold (1 unit of SGB = 1 gram of Gold)
Superior alternative to buying physical gold
Free from issues like making charges and purity as in gold jewelry
Assurance of Purity and Safety by RBI
Minimum Investment: 1 gram and Maximum Investment: 4kgs for Individuals & HUF; 20kgs for Trust and similar entities
SGBs open for subscription during specified periods during a financial year (Calendar for FY21 on page 13)
On maturity, investors receive redemption proceeds in Indian Rupees into their bank accounts
Both Allotment and Redemption price is based on simple average of last 3 business days for 999 purity as published by Indian Bullion and Jewelers Association Limited
Source: I-Sec Research KEY FEATURES AND BENEFITS OF SGBs
2.5% Assured Interest p.a. Capital Gain Opportunity as on initial investment Returns are linked to Gold Price
₹ 50 discount per gram on No Capital Gain Tax if Held investment price to Maturity*
Zero Holding Cost No TDS on Interest
Source: I-Sec Research *For Individuals Only KEY FEATURES AND BENEFITS OF SGBs
Zero Risk & Cost of Storage Securely Held in Demat form
Can be used as Collateral Tenor of 8 years; for Loan Option to exit after 5th yr
Sovereign Guarantee on Tradeable on Stock Exchanges* Redemption Amount & Interest Payment
Source: I-Sec Research *Subject to Liquidity COMPARISON OF SGBs, PHYSICAL GOLD AND GOLD ETFs
Particulars Sovereign Gold Bonds Physical Gold Gold ETFs
Fixed Interest 2.50% p.a. payable half-yearly No Interest No Interest
‘0’ Capital Gain tax on redemption* Short Term: Before 3 years, as per marginal slab Capital Gain Tax Interest taxed as per slab Long Term: After 3 years, 20% with indexation
Can be traded on NSE/BSE** & Liquidity / Exit option Restrictive Tradable on stock exchanges redeemed from 5th year
No charges in primary issues & No Expenses / Cost Making charges, Storage cost Recurring annual expenses annual expense
Highest purity denoted by IBJA as Purity Remains questionable High as it is Demat form ‘999’
Safety High Risk of theft & wear/tear High
Source: I-Sec Research *For Individuals Only ** Subject to Liquidity SGB INVESTMENT CALENDAR FOR FY 2021-22
Reserve Bank of India (RBI) through its notification dated May 12, 2021 announced the launch of Sovereign Gold Bonds (SGBs) 2021-22. These bonds will be issued in Six tranches from May 2021 to September 2021 as per the calendar below:
Sr. No Tranche Date of Subscription Date of Issuance
1 2020-21 Series I May 17 to May 21, 2021 May 25, 2021
2 2020-21 Series II May 24 to May 28, 2021 June 01, 2021
3 2020-21 Series III May 31 to June 04, 2021 June 08, 2021
4 2020-21 Series IV July 12 to July 16, 2021 July 20, 2021
5 2020-21 Series V August 09 to August 13, 2021 August 17, 2021
6 2020-21 Series VI August 30 to September 03, 2021 September 07, 2021 DISCLAIMER
• ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. I-Sec acts as a distributor to offer gold bonds. • The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The information mentioned herein above is only for consumption by the client and such material should not be redistributed. • The information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Limited. The contents of this presentation are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Thank you