SGB Discontinued: Check Alternatives for Gold Investments

The Union government has decided to discontinue the Sovereign Gold Bond (SGB) scheme due to the high costs associated with borrowing. Finance Minister Nirmala Sitharaman confirmed this decision at a press briefing following the Union Budget announcement on February 1.

Launched in 2015 as part of the Gold Monetisation scheme to reduce gold imports, the SGB scheme became increasingly popular over time due to its government-backed nature.

The first tranche of the scheme offered returns ranging from 10.68% to 13.5%. The bonds were initially issued in November 2015 at a price of ₹2,684 per gram and were redeemed in November 2023.

Ajay Seth, the Economic Affairs Secretary, explained the reasoning behind the decision, noting that the SGB scheme was originally introduced to raise market funds and reduce gold imports. However, in recent years, it has become a relatively expensive borrowing method for the government. Despite a ₹18,500 crore allocation for SGBs in the FY25 Budget (down from ₹26,852 crore in the interim Budget), no new tranches of SGBs have been issued this fiscal year. The most recent issuance was in February 2023, amounting to ₹8,008 crore.

In this blog, we will explore alternative options now that SGBs have been discontinued.

Gold ETFs (Exchange-Traded Funds)

Gold ETFs are mutual fund schemes that invest in physical gold. They are listed and traded on stock exchanges, allowing you to buy and sell gold just like shares.

• Benefits:
  • Liquid and easy to trade
  • No need for physical storage
  • Transparent pricing based on the current market rate of gold
• Risks:
  • Market fluctuations
  • Brokerage charges for buying/selling

Gold Mutual Funds

These funds invest in gold and gold-related assets, such as shares of gold mining companies or other commodities linked to gold.

• Benefits:
  • Professional fund management
  • Diversified exposure to gold mining companies, not just the metal itself
  • Ideal for long-term investment
• Risks:
  • Exposure to fluctuations in gold mining stocks or related sectors
  • Fund management fees

Physical Gold (Jewellery, Coins, Bars)

This is the most traditional way of investing in gold by buying physical gold in the form of coins, bars, or jewellery.

• Benefits:
  • Tangible asset that you can physically possess
  • Cultural significance, especially in India
• Risks:
  • Storage and security concerns
  • Making charges on jewellery and taxes
  • Lower liquidity (can take time to sell)

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.