Important News for Sovereign Gold Bond (SGB) Investors – What the Government Revealed
Sovereign Gold Bonds (SGBs) offer a unique investment opportunity, allowing investors to gain exposure to gold without physically purchasing it. These bonds, issued by the Reserve Bank of India (RBI) on behalf of the Government of India, are directly linked to gold prices. In addition to capital appreciation, investors receive a fixed interest of 2.5% per annum, paid semi-annually.
Gold prices have skyrocketed, crossing ₹91,000 per 10 grams. While this is excellent news for investors, it poses a financial burden on the government. Since the SGB scheme guarantees both fixed interest and market-value redemption, the increasing gold prices make it an expensive borrowing method for the government. Consequently, investors are currently benefiting significantly from these bonds.
✔ Double Returns:
Interest Income: Investors receive 2.5% annual interest on the invested amount, paid every six months.
Market-Based Redemption: At maturity (after 8 years), investors get the prevailing gold price, which could be ₹95,000–₹1,00,000 per 10 grams or even higher. ✔ Tax Advantage: No capital gains tax is applicable on maturity proceeds, making it a tax-efficient investment.
The Ministry of Finance informed Parliament that due to recent fluctuations in gold prices and economic challenges, borrowing through Sovereign Gold Bonds has become costly for the government. Unlike previous years, the government did not issue any SGBs in FY 2024-25. Instead, it raised funds through the Indian G-Sec market (government securities), which offered a lower borrowing cost compared to SGBs.
📌 Government’s Shift in Strategy:
No new SGB issuances in FY 2024-25.
Preference for government securities (G-Sec) over gold-backed borrowing due to cost-effectiveness. 📌 Total SGB Issuance So Far:
67 tranches issued, equivalent to 146.96 tons of gold.
As of March 20, 2025, approximately 130 tons of gold-backed bonds remain active.
The total value of active SGBs at issue price stands at ₹67,322 crore.
Unlike fixed deposits or traditional bonds, SGB redemption is based on market value, not the original issue price. When the bond matures, investors receive payouts based on the gold price at that time. The government maintains a Gold Reserve Fund to cover the differences in price and interest payouts.
The Indian government is currently favoring lower-cost borrowing methods like G-Secs due to the rising expenses associated with SGBs. While no new SGBs were issued this year, investors holding these bonds are set to gain significantly from rising gold prices and tax-free maturity benefits. If you’ve already invested in SGBs, you’re in a profitable position!
