What is the Sovereign Gold Bond (SGB) Scheme?

The SGB Scheme involves government securities denominated in grams of gold. Investors pay the issue price in cash and receive the bonds, which are redeemed in cash upon maturity. These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.

Who is eligible to invest in SGBs?

Residents of India, as defined under the Foreign Exchange Management Act, 1999, are eligible to invest in SGBs. Eligible investors include individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions.

What is the interest rate and how is it paid?

SGBs offer a fixed interest rate of 2.5% per annum on the initial investment amount. Interest is credited semi-annually to the investor's bank account, with the final interest payable on maturity along with the principal.

What are the risks associated with SGBs?

While SGBs provide returns linked to the market price of gold, there is a risk of capital loss if the market price of gold declines. However, investors do not lose in terms of the units of gold they have paid for.

How can one invest in SGBs?

Investors can apply for SGBs through designated banks, post offices, and recognised stock exchanges. The application process typically involves filling out a form and completing the Know-Your-Customer (KYC) process. Online applications may also be available through internet banking platforms.

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Sovereign Gold Bond Scheme Likely To End In 2025-26!

Alankar Mishra

Author

Updated: 28-01-2025 at 7:28 AM

Sovereign Gold Bond Scheme Likely To End In 2025-26!

It is expected that the Sovereign Gold Bond scheme, which was introduced in the year 2015 to reduce the physical imports of gold by India, would be phased out starting from the next financial year i.e. 2025-26. The reports further specify that the government has indicated to change its priority from economic growth to reduction of debt to GDP ratio as well as better fiscal resource management.

Why The SGB Scheme May Be Discontinued?

A senior government official mentioned that the government scheme has “fulfilled its objective” and adds to the government’s financial burden. The SGB scheme demands the government to:

At maturity, redeem the investors with gold-equivalent value, thus adding to its liabilities.
Should make periodical interest payments which further stretches fiscal resources.

The administration would like the debt-to-GDP ratio to start reducing from FY27 and hence, considers winding up the SGB scheme as one of the measures to achieve this goal. It is anticipated that while presenting the FY26 Budget, Finance Minister Mrs Nirmala Sitharaman will give the skeletons of the strategy regarding this debt reduction.

Fiscal Challenges In SGB Schemes

The Sovereign Gold Bond (SGB) scheme has somewhat fared poorly in terms of finances in recent times. This has not, however, deterred investors from purchasing bonds. As such, there have been no new bonds introduced this year. A summary of important developments regarding the SGB scheme is as follows.

No issuance of new SGBs in FY25: There were new SGBs this financial year even with a budget provision of ₹18,500 crore and SGBs were introduced this year at 26,852 crore in the interim Budget.
Latest Issuances: Generally, as of FY ‘23, the cumulative Bond Sovereign Gold Bond SGBs issued amount total ₹45,243 crore, with an outstanding amount of ₹4.5 trillion. As of March of the year 2023
Transitional provisions for early redemption: The bonds are being redeemed before maturity between May 2017 and March 2020 to reduce the financial pressure which has been emphasised by the Reserve Bank of India.

Key Features Of The SGB Scheme

The Sovereign Gold Bond (SGB) scheme offers a secure and efficient way to invest in gold without holding it physically. Launched in 2015, it has been instrumental in promoting paper gold among retail investors. Below are the key features of the SGB scheme:

Launched in 2015: Aimed to move retail investors from physical gold to paper gold.
Maturity Period: The bonds have an eight-year maturity period, with partial redemption allowed after five years.
Interest Rate: Initially set at 2.75%, later reduced to 2.5%.
Purpose: Helped reduce physical gold imports and curb gold smuggling.

Budget Signals a Shift

Recent budget decisions suggest a shift in the government's approach to the SGB scheme. These actions aim to address challenges in the gold market while focusing on broader economic goals. Key changes include:

In the FY25 Budget, the gold import duty was cut from 15% to 6% to reduce gold smuggling.
No new issuances under the SGB scheme since February 2023.

Conclusion

The Sovereign Gold Bond scheme has been a useful tool in reducing India’s gold imports and promoting paper gold investments. However, with the government prioritising fiscal consolidation and aiming to lower the debt-to-GDP ratio, the government yojana may soon be discontinued. While this marks the end of one chapter, it signals a new focus on long-term financial stability for the country.

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