Future of sovereign gold bond scheme to be decided next month

Government officials told Business Today TV that no decision has been made to end the sovereign gold bond (SGB) scheme. The future of the scheme will be discussed in a meeting in September 2024, coinciding with the RBI’s borrowing calendar meeting. 

This discussion will be crucial in determining the trajectory of the SGB scheme, which has been a significant part of the government's strategy to mobilize funds and reduce the physical demand for gold.

Despite rumors that the government's reduction of the gold import duty from 15% to 6% was due to high bond returns, officials assure that returns on SGBs will remain in double digits. 

As per sources, the reduction in import duty was aimed at stabilising the domestic gold market and making gold more accessible, rather than addressing issues with bond returns. 

The SGB scheme provides a fixed annual interest rate of 2.5% and links redemption prices to market gold prices, which means investors can benefit from gold price appreciation. 

Additionally, the scheme offers tax exemptions on capital gains at redemption, making it a tax-efficient investment. The bonds can also be used as collateral for loans or traded on stock exchanges, adding to their liquidity and utility for investors.

Launched on November 30, 2015, the SGB scheme has seen its first tranche redeemed in November 2023. This marks a significant milestone in the scheme’s history, showcasing its long-term viability. The 2016-17 Series I, issued in August 2016 at Rs 3,119 with an annual interest rate of 2.75%, is set for final redemption in August 2024. 

The redemption price is based on the average closing price of 999 purity gold over the three business days before redemption, ensuring a fair value for investors.

The interim budget on February 1 projected Rs 29,638 crore in gross receipts through SGBs, which was reduced to Rs 18,500 crore in the July budget. 

As per sources, the adjustment reflects changing market conditions and the government’s evolving fiscal strategy.