Sovereign Gold Bonds Scheme: All You Need To Know

Sovereign Gold Bonds

The Sovereign Gold Bonds scheme was launched in the budget session 2016 and approved by the cabinet to reduce the demand for physical gold.


  • India is one of the largest importers of Gold in the world
  • The demand for Gold in India is rising rapidly
  • Imports from India see a hike, with Gold as the primary contributor
  • This affects the balance of trade figures for India
  • GOI needed to restrict Gold imports to have a positive balance of trade
  • This created the need for a Gold bonds scheme
  • Gold Bonds are seen as an alternative to purchasing gold metal

About Sovereign Gold Bonds

  • Gold Bonds are issued by RBI with a fixed interest rate
  • Ministry of Finance is the concerned ministry
  • RBI, in consultation with Finance Ministry, determines the issuing amount
  • Risk of gold price changes borne by the Gold Reserve Fund created by RBI
  • GOI aims to shift 300 tonnes of Gold purchased annually as bars and coins into the Gold Bond Scheme
  • This Gold Bond scheme is expected to help GOI sustain the current account deficit

How do Sovereign Gold Bonds Work?

  • Gold Bonds are sold in banks.
  • Investors can buy gold bonds from banks, preferably where they have Saving Bank accounts.
  • Gold Bonds are treated similarly to a Bank Fixed Deposit
  • The interest rates are fixed at 1 to 2 percent
  • The tenure of the bond is from 5 to 7 years
  • The value of the bond is determined by the gold price movements in the market.
  • Gold Bonds have an attractive feature.
  • The investor will get the value of the bond according to the prevailing gold prices in the market at the time of redemption.
  • In this manner, the investor will get the same benefit of purchasing the metal gold without actually buying it.
  • In this manner, GOI can restrict Gold imports to a certain extent
  • Returns on gold bonds can be positive or negative
  • All risks of the gold bond are covered under the Gold Reserve Fund

Features of Sovereign Gold Bond

  • Bonds issued by RBI with a sovereign guarantee
  • Bonds can be easily traded and sold on exchanges
  • Gold Reserve Fund will be created by GOI through RBI
  • On gold bond maturity, redemption will be made in Rupee only
  • The price of gold bonds will vary with the market prices of gold
  • Investor needs to be aware of this price volatility
  • Gold bond deposits will not be hedged
  • RBI has a fixed tenor of the bond from 5 to 7 years to protect the investors from medium-term volatilitySovereign gold bonds


  • An NRI cannot buy gold bonds issued by RBI
  • Common Indians buy gold for marriage and other occasions as Jewellery and not for investment purposes.
  • The attitude of a typical Indian towards gold is not of an investor nature
  • This attitude will see a Luke warm response to the Gold bonds scheme
  • Also, the interest rate offered is meager, to the tune of 2.5%


  • The scheme’s effectiveness will depend on the investor’s attitude toward the gold bond scheme.
  • GOI must take steps to change the mindset of Indians from viewing gold as jewelry or a status symbol to an investment avenue
  • This transition in the behavior of Indians will take time
  • Overall, the Gold bond scheme is a welcome measure to cut imports of gold purchase.

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