Sovereign gold bond redemptions gather pace as RBI winds down scheme

A fresh round of sovereign gold bond (SGB) redemptions is underway this week, as several tranches become eligible for premature exit, according to notifications issued by the Reserve Bank of India.

Sovereign Gold Bonds are government-backed investment instruments linked to the market price of gold, offering investors exposure to the metal without the need to hold it physically. While these bonds have a tenure of eight years, investors are permitted to exit after five years. Several older tranches, particularly those issued between 2018 and 2021, are now opening up for redemption.

The current phase includes bonds such as the SGB 2020–21 Series VII and the SGB 2018–19 Series II. Redemption prices are calculated based on the simple average of the closing price of gold of 999 purity over the three business days preceding the redemption date.

The sharp rise in gold prices over the past few years has translated into significant gains for investors. For instance, bonds issued at around Rs 5,000 per unit are now being redeemed at over Rs 15,500, delivering returns of more than 200 per cent. This is in addition to the fixed annual interest of 2.5 per cent offered on SGBs.

The ongoing redemptions follow an earlier round in February involving bonds from the 2019–20 and 2020–21 series. The pace has picked up in April, with more tranches scheduled to become eligible in the coming weeks and months.

However, the scheme itself has effectively been discontinued since 2024, with no new issuances in the past two financial years and no indication of a revival. Market experts say the programme has become a costly borrowing mechanism for the government, particularly in a high gold price environment.

Dilip Parmar of HDFC Securities said it is likely that authorities will allow existing bonds to mature or be redeemed rather than introduce fresh issuances, given the rising financial burden.

Analysts note that SGB returns are directly tied to bullion prices, which have surged significantly since 2020. Gold’s appeal as a safe-haven asset during periods of economic uncertainty has further supported this rally, boosting the value of these bonds.

While the rise in gold prices has benefited investors, it has simultaneously increased the government’s cost of servicing the scheme. As more tranches become eligible for early redemption through the next financial year, payouts are expected to continue, even as the scheme itself remains on hold.