Mint Explainer: Why RBI has allowed premature redemption of sovereign gold bonds
Subscribe to enjoy similar stories. On 21 February, the Reserve Bank of India published a calendar for the premature redemption of sovereign gold bonds (SGB) issued between 16 October 2017 and 8 September 2020 in 34 tranches. The redemption of these bonds will be held between 16 April and 8 September.
The bonds' issue, maturity, and early redemption prices are linked to the market price of gold. The first tranche of the SGB, issued by the government on 26 November 2015, was priced at ₹2,684 per gram of gold. It was redeemed at maturity in November 2023 at ₹6,132 per gram.
As with other bonds, the SGBs also paid investors some interest. The interest rate on gold bonds was kept lower than the savings bank rate. The government reckoned an appreciation in the price of gold would give investors enough returns.
The initial interest rate was fixed at 2.75%, paid half-yearly, and reduced to 2.5% when a new tranche was issued in November 2016. The SGB scheme was introduced with twin objectives: One, reduce demand for investment in physical gold, reduce gold imports, and keep the country’s current account deficit in check. Two, mobilise low-cost funds for the government’s expenditure plans.
These objectives have only been partly met. Gold imports have been rising, as evidenced by trade data published by the Union commerce ministry. Besides, sovereign gold bonds turned out to be more expensive than treasury instruments that the government uses to borrow funds from the market.
The sovereign gold bonds were repayable on maturity at the end of eight years at the market price of gold. In August last year, RBI allowed investors to seek early redemption after holding the bonds for five years. Mint explains why the government has decided
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