Sovereign Gold Bond, administered by the RBI, has turned out to be another preferred investment avenue rather than suppressing physical gold demand and keeping current account deficit under check by controlling imports.
The Budget has more than doubled SGB issuance for next fiscal to ₹3,500 crore against ₹1,500 crore logged in the financial year ended March 31, 2023. It has also retained the Budget estimate for this fiscal at ₹1,500 crore against ₹402 crore raised last fiscal.
Incidentally, gold imports have jumped 20 per cent to 781 tonnes last year even as the run-away prices have suppressed demand, according to the World Gold Council data.
Somsundaram PR, Regional CEO (India), World Gold Council, said SGB has been successful in attracting a separate set of financial investors who were looking for investment in gold without the hassle of owning it physically.
The physical domestic demand for gold still ranges between 700-750 tonnes per annum and has not been impacted much by issuance of SGBs, he said.
Last November, the central bank redeemed the maiden tranche of SGBs, which had more than doubled investment in eight years. The first tranche of SGB, which was issued at ₹2,684 per gm in November 2015, was redeemed at ₹6,132 per gm. This apart, investors had earned an interest of 2.75 per cent per annum (reduced subsequently to 2.50 per cent).
The next issuance of SGB will be open for subscription between February 12-16. The RBI had issued three SGBs last year in the price range between ₹5,923 and ₹6,199 per gm.
SGBs have a tenour of eight years with an option to redeem prematurely after fifth year. The maximum limit of subscription is 4 kg for individuals and 20 kg for trusts and similar entities per fiscal year.
Abhay Khona, CEO, Smart Investment Advisors, said it is very difficult to divert physical demand for gold to financial instruments as owning gold jewellery is not only social security but also imbibed in the Indian culture.
Moreover, he said investment in SGBs is still restricted to sophisticated investors in urban cities and not marketed by distributors across India.
The RBI should provide a small incentive to get small jewellers and banks to market the product among consumers, he said.