Why Has the Government Discontinued the SGB Scheme?
The Government of India has decided to discontinue the Sovereign Gold Bond (SGB) scheme due to its high borrowing cost. Finance Minister Nirmala Sitharaman confirmed this during the post-Budget 2024 media briefing on February 1, 2025.
Economic Affairs Secretary Ajay Seth stated that the government periodically reviews its borrowing strategies. The latest assessment found that SGBs incurred significant costs, leading to the decision to stop issuing new tranches.
SGB Allocation in Budget 2025
The government allocated ₹18,500 crore for SGBs in the FY25 Budget, down from ₹26,852 crore in the interim budget. However, no new SGB tranches have been issued in the current fiscal year. The last issuance was in February 2023, amounting to ₹8,008 crore.
Performance of the SGB Scheme Since Its Inception
Launched in November 2015, the SGB scheme aimed to reduce physical gold imports by offering a digital alternative. Key details include:
- Initial interest rate: 2.75%, later fixed at 2.5% per annum.
- Returns: Investors earned approximately 9-11% per annum, including the fixed interest.
- By FY23, total SGB issuance stood at ₹45,243 crore, with an outstanding amount of ₹4.5 lakh crore as of March 2023.
Key Highlights of the SGB Scheme
- Introduced: November 2015 to curb physical gold imports.
- Maturity Period: 8 years with early redemption after 5 years.
- Interest Rate: Initially 2.75%, later fixed at 2.5% per annum.
- Redemption Price: Based on the average closing price of 999 purity gold as per India Bullion and Jewellers Association Ltd (IBJA).
- Last Issuance: February 2023.
What Does This Mean for Investors?
Since the government has discontinued the SGB scheme, no new bonds will be issued. However, existing SGB holders will continue to receive interest payments and can redeem their bonds upon maturity or as per redemption rules.
Final Thoughts
The Sovereign Gold Bond scheme was a profitable investment avenue for digital gold investors. However, the high cost of borrowing led to its discontinuation. Investors should keep an eye on RBI notifications for redemption schedules and interest payouts.
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