Sovereign Gold Bonds (SGBs): The Reserve Bank of India has announced the dates for premature redemption of Sovereign Gold Bonds issued between May 2017 and May 2020. The central bank is planning to redeem 30 SGBs from October 11 and February 7, 2025. The redemption price will be announced by the Reserve Bank of India (RBI) based on the average gold price on the last three days before maturity, the Hindu Businessline.
The window for redemption requests will be open for a period of 20 days. Following the submission of a redemption request, the amount, along with interest, will be credited to the investor's account within 10 days.
First redemption
The first redemption period for Sovereign Gold Bonds (SGB), which were issued on May 12, 2017, is scheduled to take place from October 11, 2024, to November 2, 2024. The redemption amount will then be deposited into the investor's account on November 12.
Although SGBs have a duration of 8 years, investors have the option to request early redemption after 5, 6, and 7 years.
SGBs are government-issued securities that are valued in grams of gold, serving as an alternative to owning physical gold. These bonds are available in denominations starting from one gram of gold and increasing in increments.
The minimum investment required for SGBs is one gram, with individual investors capped at 4 kg per financial year, while trusts and similar entities identified by the government have a limit of 20 kg per financial year.
Will SGBs be issued again?
Since its launch in 2015, the central bank has released different series of Sovereign Gold Bonds (SGBs) in every quarter. However, it is worth noting that the RBI hasn't gone as per schedule and has skipped the June date for SGB issuance.
The absence of information at this stage has resulted in growing inquiries and apprehensions among stakeholders. Unlike the past trend where the RBI issued 10-14 tranches of SGBs each year, the recent years have only seen four series being released, indicating a deliberate deceleration in the issuance process.
The most recent fiscal year recorded a substantial subscription of 443 lakh units, a stark contrast to the figures from FY23 (122 units), FY22 (270 units), and FY21 (323 units). This surge in subscriptions amidst a reduced number of issuances hints at a significant shift in market dynamics.
The SGBs were introduced to alleviate the burgeoning current account deficit by lessening gold imports. Offering digital gold with a fixed 2.5% interest rate, SGBs were devised to provide an alternative to physical gold purchases. The underlying premise was to encourage investors to opt for digital gold, operating under the assumption that gold prices would maintain a certain stability.
Sources told BTTV this week that the government might discontinue with SGBs as it is a "complex and expensive instrument”.
Redemption price
Earlier this month, the RBI announced the redemption price of a Sovereign Gold Bond (SGB 2016-17 Series I — issued on August 5, 2016) at Rs 6,938 for gold of 999 purity (per gram). This marked a significant increase of 122% from the issue price of Rs 3,119 in August 2016.
Despite this notable appreciation, the redemption price was approximately 4.5% lower than the average gold price in the week leading up to the Union Budget presentation on July 23. The decrease in gold prices followed the government's decision to reduce customs duty. In the 2024-25 Budget, the import duty on gold was lowered from 15% to 6%, which aimed to reduce costs for jewellers and deter gold smuggling.
In the Budget 2024 documents, it is indicated that Sovereign Gold Bond (SGB) issuances are experiencing a reduction in scale. The full-year Budget unveiled on July 23 reveals that the planned gross issuance target for SGBs in FY25 stands at Rs 18,500 crore, showcasing a significant decline of almost 38% from the initial projection of Rs 29,638 crore in the Interim Budget released in February. During the preceding fiscal year, the total gross and net borrowings through Sovereign Gold Bonds stood at Rs 26,852 crore and Rs 25,352 crore, respectively.