SGB Scheme Unveiled
In November 2015, the Indian government introduced the Sovereign Gold Bond (SGB) scheme. This initiative was designed as an alternative for owning physical
gold. The Reserve Bank of India (RBI) managed the issuance of these bonds on behalf of the government, with bonds denominated in grams of gold. Investors were attracted by the dual advantage of earning a consistent annual interest and capital appreciation linked to gold prices. The scheme’s main purpose was to decrease India’s dependence on imported physical gold, curb hoarding practices, and channel household savings into financial assets. Online payments during issuance also came with a discount of Rs 50.
Exceptional Investor Returns
The SGBs offered remarkable returns to investors. For instance, premature redemption for the 2019-20 Series-II, issued on July 16, 2019, was permitted on January 16, 2026. The redemption price was set at Rs 14,092 per unit, resulting in a substantial gain of 315% over the discounted issue price of Rs 3,393. Another example shows a gain of 309.29% over the issue price of Rs 3,443. These returns do not include the 2.5% annual interest, which was paid semi-annually. This clearly shows the financial appeal of the SGBs, providing significant returns to investors along with the benefit of interest.
Interest Rate Dynamics
The interest on these gold bonds was paid at a fixed rate of 2.5% per annum. This interest was credited semi-annually directly into the investors’ bank accounts. The RBI's statement, dated January 14, 2026, confirmed that premature redemption of these bonds was allowed after the fifth year from the date of issue. This was in accordance with the GOI notification F.No.4(7)-B(W&M)/2019 dated May 30, 2019, for the SGB 2019-20 Series-II, with the next premature redemption date being January 16, 2026. The scheme also stated that the gold bonds were repayable after eight years from the issue date, although premature redemption was permitted after five years.
Redemption Price Calculation
The redemption price for the SGBs was determined using a specific methodology. It was calculated based on the simple average of the closing gold prices published by the India Bullion and Jewellers Association (IBJA). This average was derived from the closing prices of the three business days preceding the redemption date. This careful calculation method ensured that investors received a fair value, reflecting the current market price of gold at the time of redemption. The process maintained transparency and provided a reliable benchmark for the bond's value.
Taxation Aspects Explained
The tax treatment of the SGBs followed specific guidelines under the Income-tax Act, 1961. The interest earned on the bonds was subject to taxation, as per the act's provisions. However, the capital gains tax arising from the redemption of these bonds was exempted for individual investors. Furthermore, long-term capital gains, arising from the transfer of these bonds, were eligible for indexation benefits. These tax benefits made SGBs a potentially attractive investment option for investors, offering tax advantages that were not available with all investment products.
Scheme Discontinuation Rationale
In October 2023, the government decided to discontinue fresh issuances of SGBs. The primary reason for this decision was that the scheme had largely met its objectives, and the costs of managing and servicing the bonds had become significant. Another important factor was the growing availability of other gold investment options, such as Gold ETFs and digital gold. These alternatives reduced the necessity for regular SGB issuances. Despite the discontinuation of new issuances, the existing bonds remain valid, allowing investors to hold them until maturity or opt for premature redemption, adhering to the scheme’s regulations.
