This Gold Bond scheme to be discontinued by Government

At a post-Budget media briefing on February 1, Finance Minister Nirmala Sitharaman said that the Sovereign Gold Bond (SGB) program, which was introduced in 2015 as a substitute for actual gold, would be withdrawn. Concerns regarding the program's effect on present investors and potential market repercussions were raised when the government stated that the high borrowing costs of the bonds were the primary cause for their termination. 

Why Government has Discontinued?

Ajay Seth, the secretary of economic affairs, clarified that the SGB program was first intended to decrease gold imports and raise money from the market. However, SGBs have evolved into a costly borrowing instrument for the government. No fresh tranches have been released this fiscal year, even though the FY25 Budget allocated ₹18,500 crore to SGBs, which is less than the ₹26,852 crore in the interim Budget

The SGB plan, which was introduced in November 2015, gave investors an interest-bearing investment option as an alternative to holding actual gold. The bonds have an 8-year maturity duration, and after 5 years, they can be partially redeemed. The interest rate was first set at 2.75% annually and then changed to a fixed rate of 2.5% throughout the duration of the bond.

Impact on Existing Investor

 Current SGB holders will continue to receive their rewards even though the plan will no longer accept new investments. The government has affirmed that redemptions will take place in accordance with the original plan and that existing bonds will continue to pay the guaranteed 2.5% yearly interest until maturity. SGBs are still marketable on the secondary market through stock exchanges for investors who wish to sell before they mature.

Since its inception, total issuances under the SGB scheme have reached ₹45,243 crore as of FY23, with an outstanding value of approximately ₹4.5 lakh crore recorded by March 2023. The discontinuation primarily affects prospective new investors.