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The Reserve Bank of India (RBI) on August 2 announced the final redemption price for sovereign gold bonds (SGBs) issued on August 5, 2016. The central bank has set the redemption price at ₹6,938 per gram, representing a substantial gain of 122 percent from the initial issue price of ₹3,119 per gram in August 2016. The RBI also confirmed that the scheme’s final redemption date is August 5, 2024.
The price of SGBs is determined using the simple average of the closing price of 999 purity gold, as published by the India Bullion and Jewellers Association Limited for the week preceding the subscription period. This approach ensures that the redemption price accurately reflects the current market value of gold.
In addition to the capital gains, bondholders are offered an annual interest rate of 2.5 percent, making SGBs an attractive investment option. The combination of price appreciation and annual interest has made the SGB scheme a popular choice among investors.
However, there has been some recent concern about the future of the SGB scheme A top government source told Money control on August 1 that the SGB scheme is one of the costliest methods for funding the fiscal deficit. The Central government is anticipated to make a comprehensive decision on whether to continue the scheme in the future. The official indicated that there are no current plans to replace the SGB scheme with an alternate investment option if it is discontinued.
The cost of funding the fiscal deficit via sovereign gold bonds is reportedly higher than the benefit of reducing dependence on physical gold through the scheme. Despite these concerns, revenue secretary Sanjay Malhotra assured investors on July 30 that SGBs would still provide at least a 12 percent return, alleviating some investor anxiety following market corrections and the Centre’s decision to cut customs duty on gold by nine percentage points in Budget 2024.
The SGB scheme has proven to be a lucrative investment over the years, with significant gains and annual interest providing solid returns for investors. The future of the scheme, however, remains uncertain as the government weighs its costs and benefits.