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Sovereign Gold Bond

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Logo of the Sovereign Gold Bond scheme, extracted from an advertisement published by the Government of India. It contains the words "Sovereign Gold Bonds scheme" in red color, along with a caption "Invest wisely, earn safely" in golden color.
Logo of the Sovereign Gold Bond

Sovereign Gold Bond, abbreviated as SGB, is a government security issued by the Reserve Bank of India (RBI) on behalf of the Government of India. It is denominated in grams of gold and is linked to the price of gold in India. It is also an interest-bearing bonds, carrying an interest of 2.5% p.a. paid in two installments in a year.[1][2]

The bond has an 8-year term with an option for early withdrawal through the RBI after 5 years. It is listed and traded on Indian stock exchanges, allowing eligible investors to buy or sell anytime through their dematerialization accounts. It can also be transferred to another eligible investor without redemption through the RBI.[3]

The scheme was discontinued in 2024 due to being an expensive method of borrowing for the government. Previously issued bonds were not affected.[4][5]

History

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The scheme was introduced due to a forex crisis caused by high gold imports.[6] It was launched by the Prime Minister of India Narendra Modi in an event in New Delhi on 5 November 2015. The event was also attended by the Union Minister for Finance Arun Jaitley, the Minister of State for Finance Jayant Sinha and the Minister of State for Commerce & Industry Nirmala Sitharaman. The Gold Monetisation Scheme, Indian Gold Coins and Sovereign Gold Bonds were all launched in the same event.

The Prime Minister, Shri Narendra Modi launches the Gold schemes, in New Delhi on November 05, 2015. The Union Minister for Finance, Corporate Affairs and Information & Broadcasting, Shri Arun Jaitley, the Minister of State for Finance, Shri Jayant Sinha and the Minister of State for Commerce & Industry (Independent Charge), Smt. Nirmala Sitharaman are also seen.
Narendra Modi launching the Gold schemes and handing over a card to a woman in November 2015

It was first notified by the Department of Economic Affairs on 14 January 2016 under the Government Securities Act, 2006. The initial subscription required a minimum of 2 grams and a maximum of 500 grams. It was open from January 18 to January 22, 2016. The bonds initially paid 2.75% interest per year, later reduced to 2.5% per year.[7][2] The bonds were sold through banks, post offices and through online securities brokers which would allow investors to hold the bonds in demat form.[8][9]

The Prime Minister, Shri Narendra Modi addressing at the launches of the Gold schemes, in New Delhi on November 05, 2015. The Union Minister for Finance, Corporate Affairs and Information & Broadcasting, Shri Arun Jaitley, the Minister of State for Finance, Shri Jayant Sinha, the Minister of State for Commerce & Industry (Independent Charge), Smt. Nirmala Sitharaman and the Secretary, Department of Economic Affairs, Ministry of Finance, Shri Shaktikanta Das are also seen.
Narendra Modi addressing at the launch of the Gold schemes

In August 2024, the investors who would have redeemed the bonds issued in August 2016 lost suffered a loss due a fall in the price of gold. This fall was linked to the slash in import duty on gold from 15% to 6% during the 2024 Union budget of India.[10]

After the final redemption of the 2016-I series, it was rumoured that the scheme was turning out to be very expensive for the Indian government, due to an unexpected rise in the prices of gold. The government also felt SGBs have also not served the purpose for which it was launched, which was to bring down gold imports by trying to move demand from physical gold to an electronic form. In addition, the RBI has not issued any new series after February 2024.[11][12] The government also made physical gold purchases more attractive, by lowering the import duty from 15% to 6%.[13] After the 2025 Union budget of India, Minister of Finance Nirmala Sitharaman confirmed that the government had no plans of launching more tranches of SGBs. Economic Affairs Secretary Ajay Seth said that it had turned out to be a high cost method of borrowing for the government compared to traditional bonds and that they had not seen the expected reductions in import of gold. He said that it made no fiscal sense to continue with a scheme that was not beneficial for both the government and the economy.[4][5]

Eligibility

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People residing in India, as defined in the Foreign Exchange Management Act, 1999 are eligible to invest in SGBs. These include individuals, Hindu Undivided Families (HUFs), universities, trusts, and charitable institutions. People who become non-residents after buying an SGB can still hold it until maturity or premature redemption.[3]

The bonds are issued in 1-gram denominations and multiples thereof. Each eligible investor can purchase up to 4 kg per financial year. A demat account is optional; bonds can be held in dematerialized form with a securities depository or tracked by the RBI.[3]

Price

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The issue price is the average closing price of 999 purity gold from the last 3 business days before the subscription period, as published by the India Bullion and Jewelers Association Limited (IBJA). The redemption price, for both early and maturity redemptions, is the average closing price from the 3 business days before repayment.[14]

Comparison with other forms of gold investments

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SGBs, purely as an investment format, can be compared to other forms of investing in Gold.[15]

Comparison of SGB, physical gold, gold ETFs and mutual funds and digital gold in India
SGB Physical gold Gold ETF and mutual funds Digital gold
Storage Stored in government facilities. Very low risk of theft. Risk of theft Stored in vaults. Low risk of theft[16] Stored in vaults. Low risk of theft[17]
Regulated by RBI, and by extension, Government of India Not regulated SEBI, and by extension, Government of India Not regulated
Charges No making charges, GST, or expense ratio Making charges from 8% to 35%. GST of 3%. No expense ratio. No making charges or GST. Expense ratio up to 1% is allowed. No making charges. GST of 3% and commissions are applicable. No expense ratio.
Interest Fixed at 2.5% per annum No interest payments No interest payments No interest payments
Taxation No tax on capital gains. Interest is taxed at slab.[18][19] Tax on capital gains Tax on capital gains Tax on capital gains
Liqudity Can be sold on stock exchanges if held in demat form. Can be sold back to the RBI at specified intervals. Can be sold physically to jewelers Units can be sold back to the asset management company Can be liquidated instantly

Issue history

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Data of Sovereign Gold Bonds (Tranche wise) issued till 23 April 2024[20]
S No Tranche ISIN Issue Date Issue price/unit (₹) Units subscribed (grams) Redemption price/unit (₹) CAGR Returns (Absolute) (%)
1 2015-I IN0020150085 November 30, 2015 2684 913571 6132[21][22] 10.87 (128.46)
2 2016-I IN0020150101 February 8, 2016 2600 2869973 6271[23][24] 11.63 (141.19)
3 2016-II IN0020150119 March 29, 2016 2916 1119741 6601[25][26] 10.75 (126.37)
4 2016-17 Series I IN0020160027 August 5, 2016 3119 2953025 6938[27][28] 10.50 (122.44)
5 2016-17 Series II IN0020160043 September 30, 2016 3150 2615800 7517[29][30] 10.80 (127.21)
6 2016-17 Series III IN0020160076 November 17, 2016 3007 3598055 7788[31][32] 12.63 (160)
7 2016-17 Series IV IN0020160126 March 17, 2017 2943 2220885
8 2017-18 Series I IN0020170018 May 12, 2017 2951 2027695
9 2017-18 Series II IN0020170034 July 28, 2017 2830 2349953
10 2017-18 Series III IN0020170059 October 16, 2017 2956 264815
11 2017-18 Series IV IN0020170067 October 23, 2017 2987 378945
12 2017-18 Series V IN0020170075 October 30, 2017 2971 174024
13 2017-18 Series VI IN0020170083 November 6, 2017 2945 153356
14 2017-18 Series VII IN0020170091 November 13, 2017 2934 175121
15 2017-18 Series VIII IN0020170109 November 20, 2017 2961 135666
16 2017-18 Series IX IN0020170117 November 27, 2017 2964 105512
17 2017-18 Series X IN0020170125 December 4, 2017 2961 107380
18 2017-18 Series XI IN0020170133 December 11, 2017 2952 81614
19 2017-18 Series XII IN0020170141 December 18, 2017 2890 111218
20 2017-18 Series XIII IN0020170158 December 26, 2017 2866 131958
21 2017-18 Series XIV IN0020170166 January 1, 2018 2881 327434
22 2018-19 Series I IN0020180033 May 4, 2018 3114 650337
23 2018-19 Series II IN0020180249 October 23, 2018 3146 312258
24 2018-19 Series III IN0020180314 November 13, 2018 3183 409398
25 2018-19 Series IV IN0020180389 January 1, 2019 3119 207886
26 2018-19 Series V IN0020180462 January 22, 2019 3214 243606
27 2018-19 Series VI IN0020180561 February 12, 2019 3326 207388
28 2019-20 Series I IN0020190073 June 11, 2019 3196 459789
29 2019-20 Series II IN0020190081 July 16, 2019 3443 535947
30 2019-20 Series III IN0020190107 August 14, 2019 3499 1024837
31 2019-20 Series IV IN0020190115 September 17, 2019 3890 627892
32 2019-20 Series V IN0020190370 October 15, 2019 3788 455776
33 2019-20 Series VI IN0020190388 October 30, 2019 3835 693210
34 2019-20 Series VII IN0020190461 December 10, 2019 3795 648304
35 2019-20 Series VIII IN0020190537 January 21, 2020 4016 522119
36 2019-20 Series IX IN0020190545 February 11, 2020 4070 405957
37 2019-20 Series X IN0020190552 March 11, 2020 4260 757338
38 2020-21, Series I IN0020200062 April 28, 2020 4639 1772874
39 2020-21, Series II IN0020200088 May 19, 2020 4590 2544294
40 2020-21, Series III IN0020200104 June 16, 2020 4677 2388328
41 2020-21, Series IV IN0020200146 July 14, 2020 4852 4130820
42 2020-21, Series V IN0020200161 August 11, 2020 5334 6349781
43 2020-21, Series VI IN0020200195 September 8, 2020 5117 3190133
44 2020-21, Series VII IN0020200203 October 20, 2020 5051 1859518
45 2020-21, Series VIII IN0020200286 November 18, 2020 5177 1573457
46 2020-21, Series IX IN0020200377 January 5, 2021 5000 2869886
47 2020-21, Series X IN0020200385 January 19, 2021 5104 1214048
48 2020-21, Series XI IN0020200393 February 9, 2021 4912 1227915
49 2020-21, Series XII IN0020200427 March 9, 2021 4662 3230907
50 2021-22, Series I IN0020210053 May 25, 2021 4777 5318973
51 2021-22, Series II IN0020210061 June 1, 2021 4842 1898475
52 2021-22, Series III IN0020210087 June 8, 2021 4889 1479232
53 2021-22, Series IV IN0020210111 July 20, 2021 4807 2923762
54 2021-22, Series V IN0020210129 August 17, 2021 4790 2292743
55 2021-22, Series VI IN0020210145 September 7, 2021 4732 3520341
56 2021-22, Series VII IN0020210178 November 2, 2021 4761 3248238
57 2021-22, Series VIII IN0020210228 December 7, 2021 4791 2480493
58 2021-22, Series IX IN0020210236 January 18, 2022 4786 2333188
59 2021-22, Series X IN0020210319 March 8, 2022 5109 1539694
60 2022-23, Series I IN0020220045 June 28, 2022 5091 2557864
61 2022-23, Series II IN0020220078 August 30, 2022 5197 3360408
62 2022-23, Series III IN0020220110 December 27, 2022 5409 2811010
63 2022-23, Series IV IN0020220169 March 14, 2023 5611 3531586
64 2023-24, Series I IN0020230069 June 27, 2023 5926 7769290
65 2023-24, Series II IN0020230093 September 20, 2023 5923 11673960
66 2023-24, Series III IN0020230168 December 28, 2023 6199 12106807
67 2023-24, Series IV IN0020230184 February 21, 2024 6263 12785729
TOTAL 146961537

Note: CAGR calculations do not include interest payments and are post-tax, since capital gains tax arising on redemption of SGB to an individual has been exempted.[18]

References

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  1. ^ Rukhaiyar, Ashish (17 May 2020). "Sovereign Gold Bonds, a substitute for physical gold". The Hindu. ISSN 0971-751X. Archived from the original on 27 July 2024. Retrieved 26 July 2024.
  2. ^ a b "What is Sovereign Gold Bonds Interest Rate & How Its Paid?". ICICI Direct. 22 December 2022. Archived from the original on 8 February 2023. Retrieved 25 April 2024.
  3. ^ a b c "Sovereign Gold Bond Scheme". Reserve Bank of India. 4 February 2019. Archived from the original on 9 April 2024. Retrieved 25 April 2024.
  4. ^ a b Mittal, Meghna (1 February 2025). "Centre discontinues Sovereign Gold Bond scheme due to high cost of borrowing". Moneycontrol. Archived from the original on 4 February 2025. Retrieved 5 February 2025. Finance Minister Nirmala Sitharaman confirmed the decision during the post-Budget media briefing on February 1, when asked about the future of the SGB scheme. "Yes, in a way," she said, acknowledging the discontinuation of the scheme which was launched in 2015 to curb physical gold imports. "These are the decisions which are taken with the purpose of raising borrowings from the market, for the purpose of financing the Budget, and at some point of time, whether this asset class is to be supported or not. The recent past experiences have been that this has been a rather fairly high-cost borrowing for the government. As a result, the government has chosen not to follow that path," Economic Affairs Secretary Ajay Seth explained at the briefing.
  5. ^ a b Sinha, Shishir (3 February 2024). "Sovereign gold bonds benefitted individuals but not the economy, says DEA Secretary Ajay Seth". The Hindu Business Line. Archived from the original on 4 February 2025. Retrieved 5 February 2025. This may be good for people with higher levels of saving who want to diversify. But from the economy perspective, there is a hardly any gain. We import very significant part of our total consumption or the investment. This is a negative for the economy but for that individual investor, it is diversification and some returns coming up. Expectation at the time of launching the scheme was that it will moderate the import requirement. If it were to be a sizable amount out of our total import bill, it makes sense. We import about 800 tonnes in a year. If reductions were to be order of 40-50 tonnes, it makes the case. What if it is 5 or 10 tonnes? It is neither here nor there. Also, there is not much foreign exchange savings. On the other hand, this is among the costliest borrowings for the government. Otherwise, borrowings are available at 7 per cent here while the cost of gold bond is 12-15 per cent. So, neither the economy nor the government is gaining. Of course, individuals are gaining. At this point of time, it doesn't make economic or fiscal sense to continue with this. That's why no fresh issuance of gold bond has been done. But I'd just like to make one point – whatever commitment has already been made to gold bond holders will be met 100 per cent in terms of redemption and tax treatment.
  6. ^ Sabnavis, Madan (20 November 2023). "India wants gold, not gold bonds". Business Line. Archived from the original on 1 December 2023. Retrieved 26 July 2024. Sovereign gold bonds (SGBs) were introduced in the country in FY16 against the backdrop of a forex crisis, which was fuelled partly by high gold imports.
  7. ^ "Notification" (PDF). The Gazette of India. New Delhi. 14 January 2015. pp. 39–40. Archived (PDF) from the original on 25 April 2024. Retrieved 25 April 2024.
  8. ^ "Sale of Sovereign Gold Bond through post offices in Tiruchi Division". The Hindu. 11 February 2024. ISSN 0971-751X. Archived from the original on 26 July 2024. Retrieved 26 July 2024. The Department of Posts has announced the sale of Sovereign Gold Bonds from February 12 at the Tiruchi Head Post Office, Lalgudi Head Post Office, and 99 sub post offices under the Tiruchi Postal Division.
  9. ^ Nallamuthu, Akhil (20 December 2023). "Sovereign Gold Bond FY24 Series III opens till December 22: Should you invest?". Business Line. Archived from the original on 27 July 2024. Retrieved 26 July 2024.
  10. ^ Jain Kaushal, Teena (24 July 2024). "Budget 2024: Sharp dip in gold prices leaves Sovereign Gold Bond investors high and dry". Business Today (India). Archived from the original on 24 July 2024. Retrieved 27 July 2024.
  11. ^ Iyengar, Suresh P. (15 August 2024). "SGBs turn costly affair for govt, fail to curb imports". Business Line. Archived from the original on 21 August 2024. Retrieved 3 September 2024. The fund-raise through sovereign gold bonds (SGB) has turned out to be a costly proposition for the government as the gold prices have more than doubled compared to the issue price.
  12. ^ "Why are SGBs giving the government second thoughts?". Finshots. 21 August 2024. Archived from the original on 3 September 2024. Retrieved 3 September 2024. The SGB scheme may have turned into a bigger challenge than the government originally planned. And if gold prices keep climbing, we won't be surprised if we just see the end of Sovereign Gold Bonds altogether.
  13. ^ Sinha, Shishir (17 November 2024). "Sovereign gold bonds losing favour with government". The Hindu Business Line. Archived from the original on 17 November 2024. Retrieved 17 November 2024. The fate of SGB seems to have been sealed when the government lowered import duty on gold to 6 per cent from 15 per cent, making physical gold purchases more attractive than investments in SGBs.
  14. ^ Kulkarni, Sneha (15 February 2024). "New Sovereign Gold Bond tranche: Is SGB Series IV 2023-24 issue price highest ever offered?". The Economic Times. ISSN 0013-0389. Archived from the original on 24 February 2024. Retrieved 25 April 2024.
  15. ^ "What are Sovereign Gold Bonds (SGBs)?". Zerodha Support. Archived from the original on 8 December 2023. Retrieved 25 April 2024.
  16. ^ Kriplani, Jash (9 November 2021). "Explained: All about how gold ETFs give investors the purest yellow metal". Moneycontrol. Archived from the original on 9 November 2021. Retrieved 25 April 2024. Fund houses appoint custodians to handle the physical gold who, in turn, appoint a vaulting agency to store the gold in vaults.
  17. ^ Das, Vipul (22 April 2023). "Digital Gold in Emerging Markets: What are the opportunities and challenges for investors?". Live Mint. Archived from the original on 22 April 2023. Retrieved 25 April 2024. Your investment in digital gold is securely held in a monitored vault under the control of reputable trustees.
  18. ^ a b "Sovereign Gold Bond Scheme (SGB)". Union Bank of India. Archived from the original on 3 October 2023. Retrieved 25 April 2024.
  19. ^ Das, Basundha (11 February 2024). "Sovereign Gold Bond Series IV FY24: How are SGBs taxed? Details here". Business Today (India). Archived from the original on 11 February 2024. Retrieved 20 July 2024. The interest earned from Sovereign Gold Bonds is subject to taxation as per the regulations of the IT Act, 1961. However, when an individual redeems the SGB, they are exempted from paying capital gains tax. Additionally, investors enjoy indexation benefits on long-term capital gains, whether they choose to transfer the bond to another person or not.
  20. ^ "Data of Sovereign Gold Bonds (Tranche wise) issued till April 23, 2024". Reserve Bank of India. 23 April 2024. Archived from the original on 25 April 2024. Retrieved 26 April 2024.
  21. ^ Ray, Abeer (30 November 2023). "SGB 2015-I series set for redemption on November 30 with 128% profit on investment; all you need to know". Live Mint. Archived from the original on 30 November 2023. Retrieved 15 May 2024. Redemption Value: ₹6,132 per gram
  22. ^ Sharma, Shweta (24 November 2023). "Final redemption under Sovereign Gold Bond (SGB) Scheme - Price for final redemption of SGB 2015-I due on November 30, 2023 - RBI". Reserve Bank of India. Archived from the original on 15 May 2024. Retrieved 15 May 2024. Accordingly, the price for the final redemption due on November 30, 2023 shall be ₹6132/- (Rupees Six thousand one hundred thirty-two only) per unit of SGB based on the simple average of closing price of gold for the week November 20-24, 2023.
  23. ^ Kaul, Abhinav (9 February 2024). "Sovereign Gold Bond 2016-I matures; gives 13.6% return and outperforms gold funds". Moneycontrol. Archived from the original on 10 May 2024. Retrieved 15 May 2024. According to a recent Reserve Bank of India (RBI) notification, the price for the final redemption was Rs 6,271 per unit of SGB, which is based on the simple average closing price of gold for the week of January 29-February 2, 2024.
  24. ^ Prasad, Ajit (2 February 2024). "Final redemption under Sovereign Gold Bond (SGB) Scheme - Redemption Price for final redemption of SGB 2016-I due on February 08, 2024 - RBI". Reserve Bank of India. Archived from the original on 15 May 2024. Retrieved 15 May 2024. Accordingly, the redemption price for the final redemption due on February 08, 2024 shall be ₹6271/- (Rupees Six thousand two hundred and seventy-one only) per unit of SGB based on the simple average of closing price of gold for the week January 29-February 02, 2024.
  25. ^ Kulkarni, Sneha (27 March 2024). "Sovereign Gold Bond (SGB): Final redemption price of SGB 2016 Series II announced". The Economic Times. ISSN 0013-0389. Archived from the original on 23 March 2024. Retrieved 15 May 2024. The final redemption amount, which is due on March 28, 2024, is Rs 6601 for each SGB unit.
  26. ^ Prasad, Ajit (22 March 2024). "Final redemption under Sovereign Gold Bond (SGB) Scheme - Redemption Price for final redemption of SGB 2016 Series II due on March 28, 2024 (March 29, 2024 being a holiday) - RBI". Reserve Bank of India. Archived from the original on 15 May 2024. Retrieved 15 May 2024. Accordingly, the redemption price for the final redemption due on March 28, 2024 (March 29, 2024 being a holiday) shall be ₹6601/- (Rupees Six thousand Six hundred and One only) per unit of SGB based on the simple average of closing price of gold for the week March 18-22, 2024.
  27. ^ Das, Neelanjit (5 August 2024). "Sovereign Gold Bond 2016-17 Series I final redemption today: Investors to gain 122%; check SGB redemption price". The Economic Times. ISSN 0013-0389. Archived from the original on 6 August 2024. Retrieved 3 September 2024. As per the RBI press release, the final redemption price of this SGB series has been set at Rs 6,938 per unit of SGB.
  28. ^ Prasad, Ajit (2 August 2024). "Final redemption under Sovereign Gold Bond (SGB) Scheme - Redemption Price for final redemption of SGB 2016-17 Series I due on August 5, 2024". Reserve Bank of India. Archived from the original on 3 September 2024. Retrieved 3 September 2024. Accordingly, the redemption price for the final redemption due on August 05, 2024 shall be ₹6938/- (Rupees Six thousand nine hundred and thirty eight only) per unit of SGB based on the simple average of closing price of gold for the week July 29 - August 02, 2024.
  29. ^ Kulkarni, Sneha (28 August 2024). "Sovereign Gold Bonds redemption: This SGB series is up for final redemption in September; check details". The Economic Times. ISSN 0013-0389. Archived from the original on 30 September 2024. Retrieved 12 October 2024. The redemption price for the final redemption due on September 30, 2024 shall be Rs 7,517 per unit of SGB based on the simple average of closing price of gold for the week September 23 – September 27, 2024.
  30. ^ Prasad, Ajit (27 September 2024). "Final redemption under Sovereign Gold Bond (SGB) Scheme - Redemption Price for final redemption of SGB 2016-17 Series II due on September 30, 2024". Reserve Bank of India. Retrieved 12 October 2024. Accordingly, the redemption price for the final redemption due on September 30, 2024 shall be ₹7,517/- (Rupees Seven thousand five hundred and seventeen only) per unit of SGB based on the simple average of closing price of gold for the week September 23 – September 27, 2024.
  31. ^ Kulkarni, Sneha (13 November 2024). "Sovereign Gold Bond: Final redemption price of SGB 2016-17 Series III announced; check details". The Economic Times. ISSN 0013-0389. Archived from the original on 11 November 2024. Retrieved 20 November 2024. As per an RBI notification dated November 8, 2024, the redemption price for the final SGB redemption due on November 16, is Rs 7,788 per unit of SGB based on the simple average of closing gold price for the week November 04-08, 2024.
  32. ^ Prasad, Ajit (8 November 2024). "Final redemption under Sovereign Gold Bond (SGB) Scheme - Redemption Price for final redemption of SGB 2016-17 Series III due on November 16, 2024 (November 17, 2024 being a holiday)". Reserve Bank of India. Archived from the original on 20 November 2024. Retrieved 20 November 2024. Accordingly, the redemption price for the final redemption due on November 16, 2024 (November 17, 2024 being a holiday) shall be ₹ 7,788/- (Rupees Seven thousand seven hundred and eighty-eight only) per unit of SGB based on the simple average of closing gold price for the week November 04-08, 2024.


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Further reading

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