The Government of India started the Sovereign Gold Bond (SGB) scheme in 2015. It has become a trusted way to invest in gold without buying physical gold.
Investors can benefit from changes in gold prices and also earn 2.5% annual interest.
New SGB Series Stopped from 2024-25
From the financial year 2024-25, the government has stopped issuing new SGB series.
Now, investors can only buy SGBs from the secondary market, just like shares on the stock exchange.
So, it is important to understand the pricing, liquidity, and investment strategy before buying SGBs.
What Are Sovereign Gold Bonds (SGBs)?
SGBs are government-issued bonds through the RBI, and their value is tied to the price of gold. One bond equals one gram of gold.
The maturity period is 8 years, but early withdrawal is allowed after 5 years. Investors also get 2.5% fixed annual interest, paid every six months.
These bonds are listed on the NSE and BSE and can be traded through demat accounts.
Why Did the Government Stop New Series?
New SGB series were stopped from April 2024 because the scheme’s cost has gone up.
Gold prices have risen by more than 250% since 2015, increasing the amount the government must pay on maturity.
Still, the total SGB liability is ₹1.2 lakh crore, which is small compared to India’s total debt of ₹181 lakh crore.
How SGBs Work in the Secondary Market
Since new SGBs are no longer issued, investors must buy them from the stock market. But there are a few challenges:
Price Premium: Some SGBs are sold at a 10–15% premium over the Indian Bullion and Jewellers Association (IBJA) gold price, meaning you may pay more than the actual gold value.
Liquidity: Not all SGBs are actively traded. Bonds like 2023-24 Series I and III are more liquid, while others have fewer buyers, making them harder to sell.
Smart Investment Strategy for SGB Buyers
If you want to invest in SGBs through the secondary market, follow these 4 tips:
- Choose bonds that are actively traded for easier resale.
- A premium of up to 10% is acceptable; avoid paying too much over the gold price.
- Pick bonds with a maturity date that suits your financial goals (e.g., bonds maturing in 2030 or 2031).
- Hold the bond till maturity to get full tax exemption on capital gains.
Is SGB a Safe Investment?
According to Rajani Tandale, mutual fund head at 1 Finance, gold prices have surged over 250% since 2015, but the government’s liability through SGBs is still manageable.
RBI regulates SGBs, and the government backs them, making them a very safe investment.
India’s gold reserves have grown from 560 to 900 tonnes. Also, the Gold Reserve Fund has jumped from ₹3,552 crore in FY24 to ₹28,605 crore in FY25. This helps manage future payments.
Rajani says SGBs are as safe as physical gold. Since 2015, the government has never missed a payment on SGBs.
The decision to stop issuing new bonds was only due to rising costs, not because of any risk to the scheme.
