'Expensive and complex': Govt likely to discontinue sovereign gold bond issue, says report

The Government of India may discontinue the sale of Sovereign Gold Bonds (SGB) as they are considered an “expensive and complex” instrument, CNBC-TV18 reported on Thursday, August 22, quoting government sources.

Bond investors put in ₹72,274 crore in 67 segments or tranches of SGB, as per the report. Four out of the 67 have fully matured and the money has been sent back to the investors who bought the bonds. 

Bonds are a form of debt instrument which a government or a corporation can use to raise money for a particular requirement.

According to the report, investors more than doubled their invested money, payable from the government's pocket, on the first four tranches issued between 2015 and 2017.

The recent Union budget highlighted that the government owes ₹85,000 crore to investors, which is almost nine times the ₹10,000 crore it owed at the end of March 2020, said the news channel.

Prior to the official announcement, the markets looked prepared as the demand for gold bonds had increased in the secondary markets. Investors were willing to pay as much as 8 per cent more than the trading price set by the government as of August 14, as per the report.

The Sovereign Gold Bonds are listed in the secondary market and can be traded in cash segments on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) through investors' demat accounts. According to the report, the profits made from the sale of the gold bonds through the exchanges will attract a capital gains tax.

What are SGBs?

The SGB is an investment instrument in gold on paper issued by the Reserve Bank of India on behalf of the government. It was introduced in November 2015 to restrain the rising imports of gold into the country at the time.

The SGBs are denominated in multiple grams of gold, with the unit set to one gram of gold. The gold bond has a holding period of eight years and an additional option for a premature withdrawal after the fifth year.

An individual investor can buy a minimum of 1 gram and a maximum of 4 kilograms in the gold bond. Hindu Undivided Families can buy up to 4 kilogrammes, and trusts and similar entities can buy 20 kilogrammes every financial year.