Sovereign Gold Bond Scheme 2020-21 (Series VII): Should you buy?

Published: October 10, 2020 at 7:19 am

The sixth tranche of Sovereign Gold Bonds 2020-21 (Series VI) will be available for sale from October 12-16, 2020. The issue price of the Bond per gram during the subscription period will be Rs. 5041  (down from Rs. 5,117 for series VI and  Rs 5,334 for series V). However,  it is not a product for everyone. A discussion on who should buy and who should not. The schedule for future releases is now available: Sovereign Gold Bond Scheme Issue Dates October 2020 to March 2021


Gold is an extremely volatile asset, in fact, more volatile than stocks from time to time. If you have purchased Sovereign Gold Bonds for returns then your final return will depend on “timing luck” (that is, when you buy)!

Shown below is the Gold USD and Gold INR per troy ounce (31.1 grams) daily data from Jan 1979. Notice how after our economy opened up in the 90s, Gold INR kept moving up only because of the exchange rate. Both Gold prices are better correlated in the two decades.

Normalized Gold USD Gold INR and exchange rate movement
Normalized Gold USD Gold INR and exchange rate movement

Now let us look at the rolling returns. Please pay attention to the “spread” in possible returns for a given duration. The number of data points is indicated in each plot. There are 5992 eight-year data points in each coloured line. Notice that it is simply impossible to say or expect gold would X or Y returns.

8 year rolling returns of gold USD and gold INR price per troy ounce from Jan 1979
8-year rolling returns of gold USD and gold INR price per troy ounce from Jan 1979

Those who want to chase after returns must employ an entry-exit plan such as this – a tactical buying strategy for gold and use ETFs for small sums and gold funds for larger amounts. This tool can be used: Using moving averages for tactical buy/sell

Sovereign Gold Bond Scheme 2020-21 (Series V): Who should buy?

Sovereign gold bonds offer a tax-free, risk-free way to accumulate gold as long as your future gold purchase is more than eight years away*.  You also get 2.5% interest (taxable as per slab) on the initial gold value as a “thank you for reducing gold imports(temporarily)” gift from the govt.

This is risk-free because the bond tracks the price of 24-carat gold and at any given time and after eight years one could buy 22-carat jewellery. * These bonds cannot be sold in the middle of the tenure unless you are willing to take a loss. So if you want to buy jewels after 10 years, buy Sovereign Gold Bonds 2020-21 for the first eight years and then hold cash or buy the gold asap.

When the ultimate aim is to buy gold, returns from gold bonds or any other instrument are irrelevant. When the aim is diversification, then returns from gold should not be a major concern. Thankfully so because gold is volatile that one simply cannot expect 6%, 8%, comparable to inflation or any other number. The variation in returns is simply too great!

Reference:  Fin MIn Press release

Do share if you found this useful

Did you know? We have more than 900+ videos on YouTube to explore! Join our YouTube Community!

Use our Robo-advisory Excel Template for a start-to-finish financial plan!

Join our courses in exclusive Facebook Groups!

  • 500+ members are now part of our new course, How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner wanting more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills, building a community that trusts you and pays you!
  • 1822 members have signed for Goal-based portfolio management (watch 1st lecture for free). This is an online course to reduce fear, uncertainty and doubt while investing for a financial goal. Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners on a monthly basis
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps