I know there are lot of investors who are obsesses with gold as I’m with equity as a whole. In recent you might have noticed something odd. If not, this blog post will draw your attention towards it. The Sovereign Gold Bond (SGB) scheme, once the golden child of the Indian government’s financial toolkit, seems to have quietly slipped out of favor. Remember how they used to hype it up? “Invest in gold without the hassle. Earn interest. Save the country from gold imports.” Yes, that was the vibe earlier. But lately? Focus is back on Cricket. No new issuances of the said Bond since 2023. There are whispers of it being a “burden” are floating around. So, what’s the matter? Why has this scheme lost its preference for the folks in Delhi?
Gold Without the Glitter
First, let’s rewind to 2015 when the SGB scheme was brought into the scene.
Those were different times. India’s a gold-crazy nation, weddings, festivals, you name it, we’re buying it. But all that gold lust was draining our forex reserves. We’re talking over 1,000 tons imported annually, second only to oil in sucking up dollars.
The Modi government, with the Reserve Bank of India (RBI) in tow, had an excellent idea, “What if we could get people to invest in gold without actually buying it?” This is how the Sovereign Gold Bonds, which is essentially paper gold came into picture.
What was the scheme? You buy a bond in grams, it’s tied to gold prices, and at the end of 8 years (or 5, if you cash out early), you get the market value of that gold, plus a neat 2.5% interest per year. No storage headaches, no purity worries, and the capital gains on redemption? The gains were also also Tax-free (if held for 8 years). That was too good, right?
The pitch of the Indian government was simple, convince people to ditch physical gold for this financial avatar. Fewer imports, more savings, and a win-win for everyone.
Banks, post offices, even stock exchanges got roped in to push it hard. Tranches rolled out every few months, and the government marketed it like crazy, especially to a few gold fanatics, who’d rather stash gold under the mattress than trust a bank.
For a while, it seemed like a genius move.
The Period When It All Made Sense
In the early days, the SGB scheme had its swagger.
Gold prices were chugging along steadily, around Rs.2,600 per gram when it launched (2015). The payouts looked manageable. Investors trickled in, lured by the interest rate. Why? Because physical gold cannot earn you income. Plus, there was also that government’s backing.
By 2020, over 4 lakh people had bought into it, with subscriptions hitting ₹46,000 crore across dozens of tranches. Not massive compared to India’s gold obsession, but decent for a new idea. Plus, the government could pat itself on the back, a part of the import demand was shifting to bonds.
I remember Finfluencer jumping in around 2018. He’d say, “Bro, it’s like gold, but I don’t have to hide it from my wife.”
The vibe was truly optimistic. Analysts cheered, saying it was a step toward financializing savings.
The government even tweaked the scheme, raising the interest rate from 2.4% to 2.5% and making it more accessible, to keep the momentum going.
All was well for the Gold Monetisation Scheme in this period.
It Changed When Gold Prices Went Bonkers
But then, the universe decided to throw a Googly: gold prices started climbing. And I mean real, fast climb.
By 2025, we’re looking at Rs.7,000+ per gram, nearly triple the price when the scheme began.
Global uncertainty, a weakening rupee, inflation fears, gold became the safe haven everyone wanted.
Great for investors, sure, but for the government? Oops moment. See, the SGB isn’t just a feel-good certificate. It’s a promise, when those bonds mature, the RBI has to pay to people up the market value of gold in rupees. So, someone who bought 10 grams at ₹26,000 in 2015 is now cashing out at ₹70,000, plus that 2.5% interest ticking along the whole time.
The math gets ugly fast.
- The first big wave of redemptions from the 2015-16 bonds is hitting now, in FY25, and the bill’s around Rs.8,040 crore. That’s a jump from the measly Rs.260 crore they paid out in FY23. And with more tranches maturing over the next few years, some estimates peg the total liability at over Rs.1 lakh crore.
- For context, that’s still a drop in the bucket compared to India’s Rs.600 lakh crore budget, but it’s not pocket change either, especially when you realize the scheme didn’t kill gold imports like they hoped.
We’re still importing 700+ tons a year. So, the government’s stuck paying out big while the original problem lingers.
The Headache Sets In
The government didn’t expect gold to skyrocket this much, and the payouts are stinging more than they planned.
By 2023, the cracks showed.
New SGB issuances stopped cold, no official “we’re done” announcement, just silence. Compare that to the 8-10 tranches they’d roll out yearly in the early days.
Why the shift? Well, beyond the rising cost, there’s the realization that SGBs didn’t quite hit the mark.
Sure, some folks jumped in, but the masses? Still lining up at jewelers.
The scheme soaked up only a fraction of India’s gold demand, less than 5% of annual imports by value. Meanwhile, the fiscal burden kept growing.
It’s like throwing a party to save money on takeout, only to spend more on catering.
Final Words
From the government’s perspective, The Gold Monetisation Scheme (GMS), which nudges you to deposit your old jewelry for interest, is now looking like a better opportunity than the Sovereign Gold Bonds. GMS like schemes don’t come with the same “pay whatever gold’s worth in 8 years” baggage.
Plus, for the government, their budget under pressure too, infrastructure projects, subsidies, defense, etc. In this scenario, they’re likely rethinking flashy promises like SGBs. Why lock in more liabilities when gold’s price is rising so fast and rupee is also getting weaker?
So what we can understand from this story?
Look, the Sovereign Gold Bond scheme isn’t dead, it’s just not the darling it once was.
For investors, it’s been a jackpot, solid returns, and no tax headaches.
But for the government, it’s morphed from a clever fix into a pricey commitment. They wanted to tame India’s gold addiction, but instead, they’ve got a tab they can’t dodge and a problem they didn’t solve.
No wonder they’ve hit pause.
Next time you hear someone mention SGBs, you’ll know the story, a bold idea that glittered until the bill came due.
What do you think, would you still buy in if they brought it back? Tell me in the comment section below.
Have a happy investing.
