Of all the instruments of investment launched in India in the past 10 years, Sovereign Gold Bonds or SGBs must rank towards the top. Launched in 2015, it raced towards the top of popularity charts quickly.
USP of Sovereign Gold Bonds
The SGB has two salient points of attraction for an investor. One, it links redemption prices to the market price of gold which has been appreciating dramatically in the past few years. Two, these bonds also carry an interest rate of 2.5% on the sum invested.
SGB First tranche returns
Investors of the first tranche of SGB that was floated in November 2015 recorded a return of about 11%. These bonds have a tenure of 8 years.
The 2016-17 Series I bonds which were issued in August 2016 will be redeemed this month. They were offered at Rs 3,119 and carried an annual interest rate of 2.75%.
Cloud of uncertainty
However, there have been recent reports that there are uncertainties on whether the government would continue with this increasingly popular scheme. It was reported that the hugely popular instrument was becoming expensive for the government, which slashed import duty on gold from 15% to 6% in the budget of FY25.
On its part, officials have told the media that the fate of this scheme would be discussed in a meeting in September and that there was no link between the reduction in duty and the SGB.
This bond is sold by the RBI on behalf of the government.
Record SGB sale in FY24
In FY24, RBI managed to sell SGBs worth 44.3 tonnes of the metal. It was the highest since the bond was launched.
In the last financial year, SGBs were valued at $3.26 billion which helped India save 7-8% of the annual import bill of gold.
Use as collateral
Another utility of the SGB is that these can be used as collateral for raising loans. They can also be traded on the stock exchanges.
This adds to the attraction of these instruments.
“The redemption price shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by India Bullion and Jewellers Association (IBJA),” reads the SGB rules.
One of the reasons for the government to launch this bond was to rein in the demand for physical gold which drains the country’s foreign exchange reserves.
Sovereign Gold Bonds have quickly gained popularity quickly among investors. In FY24, Reserve Bank of India managed to sell SGBs worth 44.3 tonnes of the metal. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
