The Sovereign Gold Bond (SGB) scheme, introduced by PM Narendra Modi’s government, aimed to encourage citizens to invest in gold through paper bonds rather than physical gold. These bonds provide returns equivalent to the market price of gold at maturity, along with an additional 2.5% annual interest offered by the Reserve Bank of India (RBI). However, currently, the scheme is on hold, and many investors are wondering when it will return.
Recent updates suggest that the government is in no hurry to re-issue the Sovereign Gold Bonds. CNBC, quoting government sources, reports that while the Modi government is not opposed to relaunching the bonds, they are cautious about sending any market signals regarding its comeback. This deliberate silence is meant to avoid unnecessary speculation.
Why Has the Government Paused Sovereign Gold Bonds?
One of the key reasons for the delay in issuing new gold bonds is the rising cost of paying these bonds upon maturity. In 2023, the first batch of these bonds began to mature, and the government had to fulfill the payout obligations. A source explained that the SGB scheme has become a costly financial tool for the government, given the dramatic increase in gold prices over the last decade.
For instance, when the first bond was issued in 2015, the price of gold was Rs 2684 per gram. By the time those bonds matured, the payout was based on a much higher rate of Rs 6132 per gram, representing an over 120% return for investors. On top of this, the government also provided 2.5% interest annually. This combination made SGBs an expensive borrowing option for the government.
Unlike social security schemes, which are essential public services, the SGB scheme isn’t something the government is compelled to maintain at a loss. For this reason, officials are likely waiting for a more favorable time to relaunch the scheme, assessing market conditions before making any decisions.
Can Investors Still Buy Sovereign Gold Bonds?
Although new bonds aren’t being issued at the moment, investors can still purchase Sovereign Gold Bonds on the secondary market through the stock exchanges in their demat form. These bonds are available for trading, allowing individuals to invest in paper gold without waiting for a fresh issue.
Will the Scheme Return?
There is no confirmed timeline for the re-issuance of the Sovereign Gold Bonds. Given the current state of gold prices—hovering around Rs 7800 per gram—the government is cautious about launching another round. While the SGB scheme has been successful in providing attractive returns to investors, it has proven to be a financial burden for the government. Therefore, any future release will likely depend on a detailed assessment of market needs and economic factors.
In the meantime, those looking to invest in gold bonds should keep an eye on the secondary market or wait for an official announcement from the government regarding the scheme’s relaunch.
