There are speculations in media that the government might scale back or even discontinue the Sovereign Gold Bonds (SGBs) scheme, which it reportedly considers too expensive. According to some media reports, the central government is likely to abandon this popular investment option.

However, no official response has come from the government to either confirm or deny the speculations in media.

The Sovereign Gold Bonds (SGBs) scheme, launched by the Reserve Bank of India for the Government of India, has been a popular investment choice. It offers a fixed interest rate and tax benefits on capital gains if you keep the bonds until they mature.

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Here’s a simple breakdown of how the gold bond scheme works –

Investment: Individuals, trusts, and companies in India can invest in gold bonds digitally. The investment is recorded in grams, with a minimum purchase of one gram per person.

Duration: The gold bond lasts for 8 years. After this period, investors receive cash equivalent to the value of the gold at that time.

Interest: The scheme offers a fixed annual interest rate of 2.5%, credited to the investor’s account every 6 months.

Reason to Discontinue the SGBs Scheme

According to a report by MoneyControl, this possible move aligns with the recent Union Budget 2024 announcement in which customs duties on gold and silver were reduced from 15% to 6%. This reduction is expected to decrease demand for Sovereign Gold Bonds. Following the tax deduction, Sovereign Gold Bond (SGB) prices on the National Stock Exchange also dropped by 2-5%.

Sources also told MoneyControl that the government had to reconsider its decision because the gold sector is important for generating employment and contributing to their exports.

Recently, ICICI Bank Ltd. has also issued a disclaimer on its Sovereign Gold Bond (SGB) Scheme page, informing investors that the SGB Scheme 2023-2024 Series might be discontinued by the government.

Image Source: ICICI Bank

The disclaimer notes that the Government of India may close the scheme with prior notice before the specified period.

Impact of Reduced Custom Duty on SGB Prices

The recent reduction in customs duties on gold and silver has already impacted SGB prices:

Multi Commodity Exchange (MCX): Gold prices dropped by over Rs 4,000, bringing the price down to Rs 68,900.

Also Read: SEBI Study Reveals 71% of Intraday Traders Lost Money in FY23

National Stock Exchange (NSE): SGBs prices decreased by 2-5%. For example, the SGBAUG24 bond fell by 2.6% to Rs 7,275 per unit, while the SGBDEC2513 bond saw the most significant drop of 5.98% to Rs 7,550.

These changes reflect the market’s response to the reduced customs duties, which have made gold more affordable but affected the demand for Sovereign Gold Bonds.

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