Govt-backed reserve fund covers nearly half of Sovereign Gold Bonds: Report

Nearly half of the gold underlying Sovereign Gold Bonds (SGBs) is fully backed by government reserves at current gold prices, senior officials told CNBC-TV18. The sources said the Centre has provisioned enough funding in the Gold Reserve Fund (GRF) to cover redemptions of 60–65 tons out of the 130 tons of gold currently outstanding under SGBs.

This reserve provides complete redemption coverage for the next 4–5 years, offering a significant confidence boost to SGB investors.

“The SGB reserve fund, with prevailing gold price, will be able to cover redemption of 60–65 tons of gold in next 4–5 years,” a source said.

As of March 20, 2025, the government has issued 67 tranches of SGBs, amounting to 146.96 tons of gold, with 130 tons still outstanding, valued at Rs 67,322 crore at the time of reporting, according to Ministry of Finance data presented in Parliament.

To strengthen the GRF, the Centre allocated Rs 28,605 crore to the fund in FY25, marking a substantial rise from Rs 3,550 crore in FY24. For FY26, the budgetary allocation stands at around ₹700 crore.

The finance ministry had earlier clarified in Parliament that the GRF is used to credit the price and interest differential associated with SGBs. The reserve fund is part of a broader fiscal provisioning framework, which also includes the Guarantee Redemption Fund, Gold Monetisation Scheme, and the Senior Citizen Welfare Fund.

This move is aimed at ensuring stability and confidence in the Sovereign Gold Bond program, which continues to be a popular long-term investment option among Indian investors.

SGB redemption

Earlier this month, the Finance Ministry indicated that no further tranches of Sovereign Gold Bonds (SGBs) will be issued, even as the government prepares to redeem 130 tonnes of gold-backed bonds starting this fiscal year.

In a written reply to the Rajya Sabha, Minister of State for Finance Pankaj Chaudhary stated that a total of 67 tranches of SGBs have been issued between FY2015 and FY2025, covering 146.96 tonnes of gold. As of March 20, 2025, the outstanding issue value stood at ₹67,322 crore for 130 tonnes of gold. He confirmed that redemption will be based on prevailing market prices.

The Sovereign Gold Bond scheme, introduced in November 2015, aimed to reduce reliance on physical gold and curb gold imports. By offering an alternative in the form of paper gold, the scheme allowed investors to benefit from gold price appreciation without the need for storage or security concerns.

SGBs had an 8-year maturity period, with an annual coupon of 2.75% (later revised to 2.5%). While premature redemption is allowed after five years, such gains are taxable. However, capital gains on redemption after the full maturity are exempt from tax. These bonds have been part of the government's open market borrowing program, serving both as a fiscal tool and a means to promote structured savings.

Chaudhary also said that the government maintains a Gold Reserve Fund (GRF) under the Public Account, where the price and interest differential is credited in a timely manner. Apart from supporting the fiscal deficit, SGBs have played a key role in encouraging financial savings and reducing demand for imported physical gold.

With redemptions now in focus and no new tranches on the horizon, the SGB program may be nearing its closure — at least in its current form.