Government to Issue Sovereign Gold Bonds

In December 2019, the Government, in consultation with the RBI has decided to issue Sovereign Gold Bonds (SGBs) in order to facilitate gold purchase by people during the festive season. These bonds were first introduced by the government in 2015.

What are Sovereign Gold Bonds (SGBs)?

• They are government securities denominated in multiples of gram(s) of gold. They are a substitute for investment in physical gold.
• To buy the bond, investor has to pay the issue price in cash to an authorised SEBI Broker. On redemption, cash is deposited into the investor’s registered bank account.
• They provide 2.5 per cent annual interest payable semi-annually on the nominal value.

Benefits of SGBs

• Cost Effective Gold Investment: In order to keep physical gold safely in lockers, people need to pay locker rent or fixed deposits, to get lockers in banks. Also SGBs offer 2.5% assured interest per annum on the issue price while physical returns on physical gold are risky.
• Reduces Import Bill: The SGBs decrease the demand for physical gold in India thus easing country’s import bill. This in turn helps in reducing the current account deficit of the country.
• Assurance of Purity: Gold bond prices are linked to price of gold of 24 carat purity.
• Other Benefits: SGBs also enjoy edge over conventional gold due to convenience of investment and redemption online, no cost of holding, no security issues like losing gold due to theft, burglary etc.