HNIs want higher gold bond limit

The bond carries an annual interest rate of 2.75% over and above the market price of gold at the time of maturity

Some foreign banks and wealth managers, on behalf of their high net worth individual (HNI) clients, have requested the government to increase the investment limit in sovereign gold bonds.

Currently, the maximum investment allowed is limited to 500 gm of gold equivalent in rupees, which roughly translates into Rs 12.5 lakh. The limit, they say, is too low for HNIs.

“This is a hugely lucrative asset class but too small in value for a HNI investor to monitor as a portfolio. If the government increases the limit, HNIs will rush to buy the bonds and the government will also be benefited by getting cheap funds instead of paying high coupon on regular bonds,” said a senior executive with a foreign bank who has asked the government to increase the limit, but did not wish to be named.

The bond, which only resident Indians can buy, carries an annual interest rate of 2.75 per cent over and above the market price of gold at the time of maturity. It is this nature of the bond, which guarantees gold prices and at the same time an additional coupon, that is making the paper an attractive investment platform, say bankers.

The first tranche of the bond attracted Rs 246 crore, or 9,15,953 gm of gold, of investment, the Reserve Bank of India said on Tuesday, adding more such tranches were scheduled to come. HNIs want to be part of these tranches.

According to another banker, who has also requested the government to increase the limit, the first few tranches may be limited to 500 gm as the government would want retail investors to get their share first. But the government has not ruled out increasing the limit, said the banker who declined to be named.

But not all wealth managers have seen their clients showing interest for the bond.

“I don’t see any great interest for this bond among HNI clients as by not investing, they are only foregoing a small coupon. If they want, they can still take positions in gold ETFs 9exchange-traded funds) and even in physical gold,” said Kartik Jhaveri of Transcend Consulting India Pvt Ltd, a financial planning firm.