Govt May Discontinue Sovereign Gold Bond Scheme: Reports

The Sovereign Gold Bond (SGB) Scheme allows resident individuals, Hindu Undivided Families (HUFs), trusts, universities and charitable institutions to invest in gold in a digital format. These bonds are denominated in grams of gold, with a minimum investment of one gram, and have an eight-year tenure, providing an exit option after the fifth year on interest payment dates.

Investors in SGBs earn a fixed annual interest rate of 2.5 per cent, payable semi-annually, and the redemption price is linked to the prevailing market price of gold at maturity. The capital gains tax arising on redemption is exempted for individual investors, and the bonds can be used as collateral for loans, adding to their attractiveness. SGBs can also be traded on stock exchanges, offering liquidity.

Now, as per reports, the government might scale back or even discontinue the Sovereign Gold Bonds (SGB) scheme, deeming it too costly, according to a source familiar with the matter, Money Control has reported.

This change comes alongside the Union budget’s decision to reduce customs duties on gold and silver from 15 per cent to 6 per cent. The lower customs duty is anticipated to decrease the demand for Sovereign Gold Bonds. Consequently, after the tax cut, SGB prices on the National Stock Exchange dropped by 2-5 per cent.

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Previously, gold and silver were subject to a 15 per cent duty, comprising a 10 per cent basic customs duty and a 5 per cent Agriculture Infrastructure Development Cess. This tax reduction has caused a significant drop in gold prices on the Multi Commodity Exchange (MCX), with prices falling by over Rs 4,000 to Rs 68,900. Similarly, SGB prices on the National Stock Exchange (NSE) decreased by 2-5 per cent. For instance, SGBAUG24 fell by 2.6 per cent to Rs 7,275 per unit, while the most substantial drop was observed in SGBDEC2513, which declined by 5.98 per cent to Rs 7,550.

The initial tranche of SGBs, issued on November 30, 2015, reached its final redemption in November 2023. Investors in the SGB scheme 2016-17 Series I, issued in August 2016, are approaching their final redemption, scheduled for the first week of August 2024. The original issue price of the Sovereign Gold Bond 2016-17 Series I was Rs 3,119, with an annual interest rate of 2.75 per cent.

Previously, gold and silver were subject to a 15 per cent duty, comprising a 10 per cent basic customs duty and a 5 per cent Agriculture Infrastructure Development Cess. This tax reduction has caused a significant drop in gold prices on the Multi Commodity Exchange (MCX), with prices falling by over Rs 4,000 to Rs 68,900. Similarly, SGB prices on the National Stock Exchange (NSE) decreased by 2-5 per cent. For instance, SGBAUG24 fell by 2.6 per cent to Rs 7,275 per unit, while the most substantial drop was observed in SGBDEC2513, which declined by 5.98 per cent to Rs 7,550.

The initial tranche of SGBs, issued on November 30, 2015, reached its final redemption in November 2023. Investors in the SGB scheme 2016-17 Series I, issued in August 2016, are approaching their final redemption, scheduled for the first week of August 2024. The original issue price of the Sovereign Gold Bond 2016-17 Series I was Rs 3,119, with an annual interest rate of 2.75 per cent.