The Sovereign Gold Bond (SGB) scheme, launched in 2015 as an alternative to physical gold, will be discontinued, according to Finance Minister Nirmala Sitharaman at a post-Budget media briefing on February 1. The government cited the high borrowing costs associated with the bonds as the main reason for ending the program, prompting concerns about its impact on current investors and future market implications.
Why the Discontinuation?
Economic Affairs Secretary Ajay Seth explained that the SGB scheme was initially designed to raise funds from the market and reduce gold imports. Over time, however, SGBs have become an expensive borrowing tool for the government. Despite the FY25 Budget allocating ₹18,500 crore to SGBs—a reduction from ₹26,852 crore in the interim Budget—no new tranches have been issued this fiscal year. The most recent issuance, worth ₹8,008 crore, occurred in February 2023.
The Evolution of SGBs
Introduced in November 2015, the SGB scheme offered investors an alternative to owning physical gold by providing an interest-bearing investment. The bonds come with an 8-year maturity period, with partial redemption permitted after 5 years. Initially, the interest rate was set at 2.75% per annum, later adjusted to a fixed rate of 2.5% for the bond’s entire term.
Impact on Current Investors
While the scheme will no longer accept new investments, current SGB holders are unaffected regarding their returns. The government has confirmed that existing bonds will continue to pay the promised 2.5% annual interest until maturity, and redemptions will occur according to the original schedule. For investors seeking to exit before maturity, SGBs remain tradable on the secondary market via stock exchanges.
Since its inception, total issuances under the SGB scheme have reached ₹45,243 crore as of FY23, with an outstanding value of approximately ₹4.5 lakh crore recorded by March 2023. The discontinuation primarily affects prospective new investors.
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