Sovereign Gold Bonds (SGB) Reach Record Subscription Levels in FY24

Investors are increasingly opting for Sovereign Gold Bonds (SGBs), even in the face of rising gold prices. In fact, 30% of all investments in SGB units since 2015 have been made in FY24 alone. This trend is notable because the price of SGBs has more than doubled, from Rs 2,684 per unit at the first issuance on November 30, 2015, to Rs 6,263 per unit at the most recent issuance on February 21, 2024.

Investors Flock to SGBs as a Secure Alternative to Physical Gold

The total weight of gold represented by SGB units purchased since 2015 stands at 146,961.529 kilograms, with 44,335.778 kilograms being acquired in FY24 alone. This marks an impressive 3.62 times increase in subscriptions compared to FY23, making FY24 the most active year for SGB purchases since the scheme’s inception eight years ago.

SGBs are government securities that serve as an alternative to holding physical gold. They offer a more convenient and secure way to invest in gold without the storage risks and logistical concerns associated with physical gold. Issued by the Reserve Bank of India on behalf of the Government of India, SGBs pay periodic interest (2.50% per annum) and are redeemed in cash upon maturity.

A Diversified Investment Option for Various Investor Groups

Under the Foreign Exchange Management Act of 1999, SGBs are accessible to a wide range of investors in India, including individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. The scheme has purchase limits of 4 kilograms for individuals and 20 kilograms for trusts and other institutional investors per fiscal year. This flexibility has made SGBs an attractive option for those seeking gold investments without the hassles of physical ownership.

Addressing Market Risks and Capital Loss Concerns

While SGBs offer a secure alternative to physical gold, they aren’t without risk. The RBI acknowledges that a drop in the market price of gold could lead to capital loss for investors. However, because SGBs are denominated in grams of gold, investors retain the same amount of gold units regardless of market fluctuations. This feature, along with the periodic interest payments, has made SGBs a popular choice among investors looking to diversify their portfolios without physically owning gold.

Meeting the Growing Demand for Gold

The rising demand for gold has become a significant trend across various sectors, including central banks, exchange-traded funds, and individual investors. As the price of gold continues to climb, so does the demand. SGBs offer a unique solution, allowing a segment of investors to invest in gold without adding pressure on physical gold imports. This, in turn, helps mitigate the impact on India’s trade balance, a key concern for the country’s economy.

With the demand for SGBs reaching record levels, it’s clear that investors are finding value in this paper-based approach to gold investment. As gold continues to play a vital role in investment portfolios, SGBs are likely to remain an appealing choice for those seeking convenience, security, and diversification.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.