I know there are lot of investors who are obsesses with gold as i’m with equity as a whole. In recent you might have Noticed someating oddIf not, this blog post will draw your attention towards it. The Sovereign Gold Bond (SGB) Scheme, Once the Golden Child of the Indian Government’s Financial Toolkit, Sems to have quietly slipped out of favoriteRemember how they used to hype it up? “Invest in Gold without the Hassle. Earn Interest. Save the country from gold imports. ” Yes, that was the vibe earlier. But lately? Focus is back on cricket. No new issues of the said bond since 2023There are whispers of it being a “burden“Are Floating Around. So, what’s the matter? Why has this scheme lost its preference for the following?
Gold without the glitter
First, let’s rewind to 2015 when the sgb scheme was brought into the scene.
Thos Were Different Times. India’s a gold-crazy nation, weddings, festivals, you name it, we’re buying it. But all that Gold Lust was draining our forex reserves. We’re Talking Over 1,000 tons Imported Annually, Second Only to Oil in Sucking Up Dollars.
The modi government, with the reserve bank of India (RBI) in Tow, Had an excellent idea, “What if we could get people to invest in gold without actually buying itThis is how the sovereign gold bonds, which is essentially paper gold came into picture.
What was the scheme? You buy a bond in grams, it’s tied to gold prices, and at the end of 8 years (or 5, if you cash out early), you get the market value of that gold, plus a neat 2.5% interest per yearNo storage headaches, no purity works, and the capital gains on redemption? The Gains were also also also tax-free (if help for 8 years). That was too good, right?
The pitch of the Indian government was simpleConvince people to ditch physical gold for this Financial Avatar. Fewer imports, more savings, and a win-wind for everything.
Banks, post offices, even stock exchanges got roped in to push it hard. Tranches Rolded out every few months, and the government marketed it like crazy, especially to a less gold fanatics, who’d raather stash gold under the mattress than Trust a Bank.
For a while, it seemed like a genius move.
The period when it all made sense
In the Early Days, The SGB Scheme Had Its Swagger.
Gold pris who chugging along with steadily, Around Rs.2,600 per gram When it launched (2015The payouts looked manageable. Investors tricked in, lured by the interest rate. Why? Because physical gold cannot earn you income. Plus, there was also that government’s backing.
By 2020. Not Massive Compared to India’s Gold obsession, but Decent for a new idea. Plus, The Government Cold Pat Itself on the Back, A Part of the Import Demand was shifting to bonds.
I Remember Finfluencer Jumping in Around 2018.
The vibe was truly optimistic. Analysts cheered, say it was a step plan Financializing Savings.
The government even tweaked the scheme, Raising the Interest Rate from 2.4% to 2.5% and Making it More Accessible, to Keep the Momentum Going.
All was well for the gold monetisation scheme in this period.
It Changed when Gold Pries Went Bonkers
But then, The Universe Decided to Throw a Googly: Gold Pries Started Climbing. And i mean real, fast climb.
By 2025We’re looking at Rs.7,000+ per gramNearly triple the price when the scheme began.
Global Uncertainty, A Weaqing Rupee, Inflation Fears, Gold Became the Safe Haven Everyone Wanted.
Great for Investors, Sure, but for the Government? Oops moment. See, The SGB isn’t just a feel-good certificate. It’s a promise, when there bonds mature, the rbi has to pay to people up the market value of gold in rupees. So, someone who boght 10 grams at ₹ 26,000 in 2015 is now cashing out at ₹ 70,000, Plus that 2.5% Interest Ticking Along The Whole Time.
The Math Gets Ugly Fast,
- The First big wave of redemptions From the 2015-16 bonds is Hitting now, in Fy25And the Bill’s Around Rs.8,040 Crore. That’s a jump from the measly Rs.260 crore they paid out in fy23. And with more transches maturing over the Next Few YearsSome Estimates Peg The Total Liability at Over Rs.1 Lakh Crore,
- For context, that’s still a drop in the bucket compared to India’s’s Rs.600 Lakh Crore BudgetBut it’s not pocket change either, especially when you realize the scheme didn Bollywood goes importants like they hoped.
We’re still importing 700+ tons a year. So, the government’s stick paying out big white the original problem lingers.
The headache sets in
The Government Didnys’sTE Expect Gold to Skyrocket This much, and the payouts are sting more than they planned.
By 2023, The Cracks Showed.
New SGB Issuances Stopped Cold, No Official “We’re Done” Announcement, Just Silence. Compare that to the 8-10 traches they’d roll out yearly in the early days.
Why the shift? Well, beyond the rain cost, there’s the realization that sgbs didn Bollywood hit the mark.
Sure, some follows jumped in, but the masses? Still lining up at jewelers.
The scheme soaked up only a fraction of India’s gold demand, less than 5% of annual importants by value. Meanwhile, the fiscal burden kept growing,
It’s like throwing a party to save money on takeout, only to spend more on Catering.
Final Words
From the government’s personal, The Gold Monetisation Scheme (GMS)Which nudges you to deposit your old jewelry for interest, is now looking like a better opoportuity than the sovereign gold bonds. GMS LIKE Schemes Doon’T Come With The Same “Pay Whatever Gold’s Wort in 8 Years” Baggage.
Plus, for the government, their budget under pressure too, infrastructure projects, subsidies, defense, etc. In this scenario, they’re likely retinking flashy promises like sgbs. Why Lock in more Liabilitys when Gold’s price is Rising So Fast and Rupee is also Getting Weaker?
So what we can understand from this story?
Look, The Sovereign Gold Bond Scheme Isn Bollywood, It’s Just Not the Darling It Once was.
For investors, it’s been a jackpot, solid returns, and no tax headaches.
But for the government, it’s morphed from a clever fix into a price a price. They are wanted to tame India’s gold addiction, but instead, they’ve got a tab they can’t dodge and a problem they didn Bollywood.
No wonder they’ve hit pause.
Next time you hear someone mention sgbs, you’ll know the story, a bold idea that glittered until the bill came due.
What do you think, would you still buy in if they brieft it back? Tell me in the comment section below.
Have a happy investment.
(Tagstotranslate) Gold Investment in India (T) Indian Government Gold Scheme