Sovereign Gold Bond Scheme (SGB)
Context:
The Reserve Bank of India recently announced the issue price of the Sovereign Gold Bond tranche2.
About Sovereign Gold Bonds:
- The Sovereign Gold Bond Scheme (SGB) is a financial initiative introduced in the Union Budget of 2015-16 under the leadership of Prime Minister Narendra Modi.
- It is issued by RBI on behalf of the Government.
- The bond will be denominated in terms of gram(s) of gold with a basic unit of 1 gram.
- Tenure will be for 8 years with an exit option given after 5th year
- It is designed to transform India’s gold-saving habits and reduce the nation’s reliance on importing physical gold.
- This scheme encourages individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions to invest in gold bonds as an alternative to acquiring physical gold.
- The objective is to channel a portion of the annual gold purchases into financial savings through gold bonds.
Addressing India’s Dependence on Gold Imports
- India’s affinity for gold is well-known, and it often leads to substantial imports of this precious metal, amounting to billions of dollars annually.
- The Sovereign Gold Bond Scheme serves as a strategic tool to tackle this overreliance on gold imports by encouraging citizens to invest in gold bonds instead of acquiring physical gold. This shift in behavior not only conserves foreign exchange reserves but also promotes financial inclusion.
Encouraging Financial Literacy
- By promoting investments in SGBs, the government contributes to enhancing financial literacy among its citizens.
- Investors gain exposure to the financial markets and the concept of government-backed securities, thereby broadening their understanding of diverse investment options.
