SOVEREIGN GOLD BOND (SGB) SCHEME DISCONTINUED BY MODI GOVT; KNOW WHY

The union government has decided to stop the Sovereign Gold Bond (SGB) scheme due to high borrowing costs. At a press briefing after the Budget on February 1, Finance Minister Nirmala Sitharaman confirmed the move. "Yes, in a way," she said.

The scheme started in 2015 to reduce gold imports under the Gold Monetisation scheme. Being a government-backed scheme, it gained significant popularity over a period of time.

The first tranche of the scheme delivered returns of around 10.68% to 13.5%. The bonds were issued in November 2015 at a price of Rs 2,684 per gram and redeemed in November 2023.

‘High Cost of Borrowing’

Economic Affairs Secretary Ajay Seth explained, “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.”

He added, “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.”

No New Issues in This Financial Year

There were already reports suggesting the SGB scheme might stop. No new bonds were issued this financial year.

The Reserve Bank of India (RBI) last issued SGBs in February 2023. Since the scheme started, the total amount issued is Rs 45,243 crore (as of FY23), while the outstanding amount was Rs 4.5 lakh crore in March 2023.

Why Was SGB a Popular Investment?

• Investors got the market price of gold when they redeemed or sold early.
• SGBs were better than holding physical gold because there were no storage risks.
• Investors earned interest in addition to the gold price.
• There were no making charges or purity issues, unlike jewellery.
• Bonds were held in RBI records or demat form, so there was no risk of losing them.

Now that the scheme is ending, investors may need to look for other gold investment options.

2025-02-03T08:44:06Z