A few revisions in the guidelines to the Sovereign Gold Bonds (SGB) have been approved by the Union cabinet chaired by Prime Minister Narendra Modi on 26 July 2017. The revision have been made to make the scheme more attractive to investors and achieve its intended objectives. The most important change is raising the investment cap of the scheme eight fold to 4 kg in a financial year per person from 500 gram. We tell you about the SGB scheme and what changes have been introduced.
The Scheme
The SGB scheme was launched in 2015 with the aim to curb the demand for physical gold, by replacing it with alternate investment options in form of paper or electronic investments. The intention was to mobilise finances and reduce the economic strain caused by imports of physical gold and reduce the Current Account Deficit (CAD).
Under the scheme, investors were offered bonds, where each bond was equivalent to 1 gram of gold. The minimum investment was kept at 2 gram (reduced to 1 gram in the subsequent issue), with a maximum limit of subscription of 500 gram per person per fiscal year (April-March). Price of the bonds has to be fixed in Indian rupees on the basis of the previous week’s (Monday-Friday) simple average closing price for gold of .999 purity, published by the India Bullion and Jewellers Association Ltd. (IBJA). In the initial issues, SGB was offering 2.75% of interest per annum over and above the increase in price of gold. In subsequent issue, interest rate on SGB was brought down to 2.5% per annum.
The additional benefit was provided with a target to mobilise Rs15,000 crore in 2015-16 and at Rs10,000 crore in 2016-17 under the scheme. However, the amount so far raised by it is Rs4,769 crore. The changes have been made considering low traction of the scheme.
