4th Trench of India’s SGB Nets INR 919 Crore

New Delhi: The fourth tranche of the Sovereign Gold Bond Scheme (SGB) received applications for a record Rs.919 crore worth of gold bonds, taking the total amount received through the scheme to about Rs.2,240 crore across the four tranches of the scheme so far.

“Record amount of Rs.919 cr equivalent to 2.95 tons gold mobilized in 4th tranche. Scheme gaining popularity,” Economic Affairs Secretary Shaktikanta Das tweeted following the government announcement.

“1.95 lakh applications in 4th tranche show growing investor interest this new instrument of financial savings in lieu gold,” Mr. Das said in a separate tweet.

“The encouraging response of the investors to the SGB Scheme (Series-I) of 2016-17, indicates that the product has come of age, and is becoming popular amongst the general public due to advantages it offers over physical gold, namely use as collateral for loans, capital gains tax exemption on redemption, zero risk of theft/ impurities associated with handling of physical gold; tradability through stock exchanges and also availability in DEMAT and paper form,” the government said in a statement.

“The product, in addition, earns an interest rate of 2.75 per cent per annum, payable half yearly on initial investment,” the statement added.

The first three tranches of the scheme attracted a total of Rs.1,318 crore corresponding to 4.9 tonnes (4,900 kg) of gold, with the second tranche holding the previous record of highest subscription amount of Rs.746 crore for 2.95 tonnes of gold.

While the aim of the Sovereign Gold Bond scheme is to “reduce demand, including through imports, for physical gold, and in the process reduce India’s current account deficit,” the fact of the matter is that the scheme has a long way to go in achieving this.

India imported Rs.1.1 lakh crore worth of gold between November 2015 and June 2016, the period encompassing all four tranches of the scheme. The total worth of the applications for the gold bonds across the four tranches works out to just two per cent of this amount. The bonds sold in the period amounted to 7,784 kg of gold, which is just 1.7 per cent of the amount of gold imported in the period November 2015 to May 2016.

The government did try to make the fourth tranche of the scheme more attractive by reducing the minimum subscription limit to 1 gm from the previous 2 gm. It also exempted the redemption of the bonds from capital gains tax, a provision that was extended to the previous three tranches as well. The trading of the gold bonds on the exchanges was also operationalized.

The issue price of the fourth tranche was fixed at Rs.3,119 per gram of gold based on the simple average of the closing prices of gold of 999 purity for the week July 11 to July 15, 2016 as published by the India Bullion and Jewellers Association (IBJA).