The rising gold prices are putting much pressure on the Indian Government due to the Sovereign Gold Bond (SGB) scheme. As of 2024, the government’s liability to investors has reached ₹1.15 lakh crore, as reported in the RBI Annual Report 2024. This has led to a pressure in issuing new SGBs since February 2023.
What is Sovereign Gold Bonds (SGBs)?
Sovereign Gold Bonds (SGBs) are government-backed securities, issued by the Reserve Bank of India (RBI) on behalf of the Government of India, that allow investors to invest in gold without physically holding it, offering a way to benefit from gold price appreciation and earn a fixed interest rate.
SGBs are a form of government security denominated in grams of gold, serving as a alternative for holding physical gold. SGBs carry a fixed interest rate of 2.5% per annum, paid semi-annually, on the investment amount.
Why the Government’s SGB Liability Increased?
- The scheme, introduced in 2015, has issued ₹72,274 crore worth of SGBs across 67 phases, representing 146.96 tons of gold.
- Out of this, 16.84 tons of gold bonds have already been redeemed.
- However, 130.11 tons (13,01,15,770 grams) of SGBs are still outstanding, valued at ₹1.15 lakh crore as of current gold prices (₹ 8,817 per gram as of March 21, 2025, per IBJA).
Returns on SGB Investment
The SGB 2016-17 Series IV, maturing in March 2025, provided excellent returns for 8 years :
- Issue Price: ₹2,943 per gram
- Final Redemption Price: ₹8,624 per gram
- Gross Returns: 193%-198% (213%-218% including annual 2.5% interest) in 8 year.
- CAGR (Annual Returns): 15.33% (offline) to 15.58% (online)
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Government’s Challenges on SGB
- SGB investors enjoy a 2.5% Annual interest, adding to the financial burden.
- Record-high gold prices make redemption payments significantly expensive for the government.
- Although the scheme has been attractive for investors, it has become financially challenging for the government, resulting in no new SGB tranches in 2024 and low chances for future launches.
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FAQs on Sovereign Gold Bond (SGB):
1️⃣ Will the SGB scheme be relaunched in 2025? Considering rising gold prices and government liabilities, new tranches seem unlikely for now.
2️⃣ What are the returns on SGB investments? Investors have seen excellent returns, with gross returns reaching up to 218% and annual returns (CAGR) of around 15.58%, along with fixed 2.5% annual interest.
3️⃣ Is there any tax on SGB investments? Capital gains from SGBs are tax-free if held until maturity. However, for secondary market purchases, taxes apply based on the holding period.
Conclusion
While SGBs have provided impressive returns for investors, increasing gold prices have created significant financial challenges for the government. Investors should keep an eye on future schemes and opportunities in the secondary market.