The Sovereign Gold Bond (SGB) Scheme, which allows individuals and institutions to invest in gold in a digital format, may be facing a significant change as the government considers scaling back or discontinuing the program due to cost concerns. This news comes on the heels of the Union budget’s decision to reduce customs duties on gold and silver from 15% to 6%, which is expected to decrease the demand for SGBs.
Investors in SGBs earn a fixed annual interest rate of 2.5%, payable semi-annually, and the redemption price is linked to the prevailing market price of gold at maturity. The bonds also offer tax benefits for individual investors and can be used as collateral for loans. Additionally, SGBs can be traded on stock exchanges for added liquidity.
The reduction in customs duties has already had an impact on gold prices, with prices dropping significantly on the Multi Commodity Exchange (MCX) and the National Stock Exchange (NSE). For instance, SGB prices on the NSE have decreased by 2-5%, further adding to the challenges faced by the SGB scheme.
Investors who purchased SGBs in previous tranches are also approaching their final redemption dates, adding to the evolving landscape of the gold market. As the government deliberates on the future of the SGB scheme, investors and institutions will be closely watching for any official announcements regarding its continuity.
