Sovereign Gold Bonds
The Sovereign Gold Bond (SGB) Scheme was a flagship initiative of the Government of India, designed to offer investors a secure and efficient alternative to owning physical gold. Introduced in 2015, the scheme aimed to mobilise household savings, reduce gold imports, and provide a government-backed investment avenue linked to gold prices. However, the scheme was officially discontinued in 2025, primarily due to its high cost to the exchequer and changing fiscal priorities.
Background and Introduction
The Sovereign Gold Bond Scheme was launched in November 2015 under the Government of India’s Gold Monetisation Programme. It was managed by the Reserve Bank of India (RBI) on behalf of the government. The scheme’s objectives were to:
- Diminish India’s dependence on imported gold.
- Mitigate the current account deficit.
- Encourage investors to channel savings into formal financial instruments.
Investors could purchase these bonds in grams of gold, with issue prices linked to the market rate published by the India Bullion and Jewellers Association (IBJA). Redemption was based on prevailing gold prices at maturity, ensuring that investors benefitted from appreciation in gold value.
Key Features and Structure
The Sovereign Gold Bonds possessed several features that made them a unique investment option:
- Denomination: Bonds were denominated in grams of gold, with a minimum of 1 gram and a maximum of 4 kilograms for individuals and 20 kilograms for trusts and institutions per fiscal year.
- Tenure: Bonds matured after eight years, with premature redemption permitted from the fifth year on interest payment dates.
- Interest Rate: Investors received a fixed 2.5% per annum on the invested value, paid semi-annually.
- Form of Holding: Available in dematerialised or certificate form, allowing digital ownership.
- Tradability: Bonds could be traded on stock exchanges or transferred to other eligible investors.
- Issue and Redemption Price: Both were determined using the IBJA’s average gold price for the last three business days preceding the subscription or redemption date.
The bonds provided dual benefits—regular income through interest and capital appreciation in line with gold’s market performance.
Investment Procedure and Taxation
SGBs were available through banks, post offices, the Stock Holding Corporation of India Limited (SHCIL), and authorised stock exchanges. Investors applying online and paying digitally were entitled to a ₹50 per gram discount on the issue price.At maturity, the redemption amount was automatically credited to the investor’s bank account, based on the average price of gold (999 purity) for the last three business days as published by the IBJA.
Taxation Benefits:
- Capital Gains: Exempt for individuals upon redemption at maturity.
- Premature Transfer: Eligible for long-term capital gains tax with indexation benefits.
- Interest Income: Taxable as per the investor’s income slab.
Performance and Economic Role
Between 2015 and 2023, the RBI issued 67 tranches of SGBs, mobilising approximately ₹72,274 crore. The scheme played a vital role in promoting paper-based gold investments and provided the government with an additional borrowing avenue.However, cultural preferences for physical gold limited the scheme’s ability to substantially reduce gold imports. Nonetheless, SGBs gained traction during periods of market volatility, serving as a hedge against inflation and currency depreciation.
Discontinuation of the Scheme (2025)
In February 2025, the Union Government of India officially discontinued the Sovereign Gold Bond Scheme, citing high fiscal costs and the need to rationalise public borrowing. The decision followed the absence of new issuances after February 2023, the last tranche released by the RBI.
The government’s analysis revealed that the scheme, though beneficial to investors, had become financially burdensome. For instance, the first batch issued in 2015 at ₹2,684 per gram matured in 2023 when gold prices exceeded ₹6,100 per gram—an appreciation of over 128%. Consequently, the government incurred substantial payouts upon redemption, including both capital appreciation and interest obligations.
By 2023, the cumulative issuance under the scheme stood at ₹45,243 crore, with an outstanding liability of around ₹4.5 lakh crore. As a debt instrument, SGBs contributed directly to the government’s overall borrowing and debt-to-GDP ratio.
Fiscal and Policy Shifts
The Union Budget 2025–26 signalled a clear policy shift. The government prioritised fiscal consolidation, targeting a reduction in the debt-to-GDP ratio from 58.2% in FY 2024 to 56.8% in FY 2025. In this context, SGBs were deemed unsustainable as a borrowing mechanism.
Additionally, the government reduced the import duty on gold from 15% to 6%, suggesting a strategy focused on addressing gold-related issues through trade and taxation reforms rather than financial instruments like SGBs.
Although the Budget 2025 allocation for SGBs stood at ₹18,500 crore, down from ₹26,852 crore in the interim budget, no new issuances were planned for FY 2025. The discontinuation aligns with broader economic efforts to streamline public debt and explore alternative investment and savings mechanisms.
Implications for Investors
Existing SGB holders continue to enjoy full sovereign guarantees on their principal and interest. Bonds issued earlier remain valid until maturity, and investors can still trade them on exchanges or redeem them through authorised channels. However, with no new tranches being issued, investors seeking exposure to gold may now consider:
- Gold Exchange-Traded Funds (ETFs)
- Gold Mutual Funds
- Digital Gold Platforms
These alternatives offer liquidity and price-linked returns, albeit without the fixed interest or sovereign backing that characterised SGBs.
Evaluation and Legacy
The Sovereign Gold Bond Scheme remains an important chapter in India’s financial history. It successfully introduced a formal, paper-based method of investing in gold, bridged traditional and modern investment practices, and encouraged financial literacy regarding gold-linked instruments.