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Synopsis: The government is considering discontinuing Sovereign Gold Bonds (SGBs) due to their complexity and high costs. Despite being a popular alternative to physical gold, the expense of managing these bonds is prompting the government to rethink further issuances. The RBI recently announced a final redemption price for older SGBs, but future tranches are unlikely to be issued.
SGBs are government-backed securities denominated in grams of gold, offering an alternative to purchasing physical gold. These bonds, introduced in 2015, were designed to reduce the country's reliance on imported gold. However, despite their popularity among investors, the government is reassessing the viability of continuing with these bonds.
Sources indicate that the intricate structure and expense associated with managing SGBs are the primary reasons for potentially halting further tranches. The Reserve Bank of India (RBI) issues these bonds on behalf of the government, and they have been well-received by investors, with several tranches already reaching maturity.
Recently, the RBI announced the final redemption price for the August 2016 SGBs at ?6,938 per gram, a significant increase from the initial issue price of ?3,119 per gram. Despite this lucrative return, the government's concerns about the financial burden of these bonds are mounting. The cost to the government, including the redemption payouts and the administrative expenses of managing these bonds, has reportedly contributed to the decision to potentially cease their issuance.
Investors who have benefited from the attractive returns of SGBs may need to explore alternative gold investment options as the future of these bonds hangs in the balance.
