Sovereign Gold Bonds may be discontinued due to high costs

Investors have put Rs72,274 crore into 67 tranches

NEW DELHI: The Government of India may discontinue the sale of Sovereign Gold Bonds (SGBs) due to concerns that they are considered an “expensive and complex” investment instrument, according to government sources.

Investors have put Rs72,274 crore into 67 tranches of SGBs. Of these, four tranches have fully matured, and the principal amounts have been returned to the bondholders. Bonds are debt instruments issued by the government or corporations to raise funds for specific needs.

The report indicates that investors more than doubled their initial investments in the first four tranches issued between 2015 and 2017, with the government now owing Rs85,000 crore to investors. This is nearly nine times the Rs10,000 crore owed at the end of March 2020, as noted in the recent Union budget.

Demand increased

Before any official announcement, the market appeared prepared for a potential change. Demand for gold bonds had increased in the secondary market, with investors willing to pay up to 8 per cent more than the trading price set by the government as of August 14.

Sovereign Gold Bonds are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) and can be traded in cash segments through investors’ demat accounts. Profits from trading these bonds on the exchanges are subject to capital gains tax.

RBI introduced

Introduced in November 2015 by the Reserve Bank of India on behalf of the government, SGBs were designed to curb rising gold imports. These bonds are denominated in grams of gold, with one gram being the basic unit. They have a holding period of eight years, with an option for early withdrawal after the fifth year.

Individual investors can purchase a minimum of 1 gram and a maximum of 4 kilograms of gold bonds, while Hindu Undivided Families can buy up to 4 kilograms, and trusts and similar entities can acquire up to 20 kilograms per financial year.