The Indian government has officially discontinued the Sovereign Gold Bond (SGB) scheme, citing high borrowing costs as the primary reason. Introduced in 2015 under the Gold Monetisation Scheme, SGBs were a key alternative to physical gold, aiming to curb gold imports while offering investors a secure, interest-bearing instrument backed by the government.
Why Has the Government Discontinued the SGB Scheme?
Economic Affairs Secretary Ajay Seth recently stated that while the SGB scheme helped raise funds through market borrowings, its cost to the government has been relatively high. With evolving fiscal strategies, the government has decided to phase it out, focusing on more cost-effective financing methods.
Impact on Existing SGB Investors
For those who have already invested in SGBs, here’s what you need to know:
✔️ Existing SGBs Will Remain Valid – Investors will continue receiving 2.5% annual interest until maturity. ✔️ Redemption Will Follow the Original Terms – On maturity (after 8 years, with an early exit option from the 5th year), investors can redeem bonds based on prevailing gold prices. ✔️ Liquidity via Secondary Market – If investors wish to exit early, they can sell their holdings on stock exchanges, subject to demand and pricing. ✔️ Tax Benefits Continue – Capital gains tax exemption on redemption remains applicable.
What Are the Best Alternatives to SGBs Now?
With the discontinuation of SGBs, investors looking for gold exposure have multiple alternatives:
1. Gold Exchange-Traded Funds (Gold ETFs)
📌 Pros: No storage risks, easy to buy/sell on stock exchanges, high liquidity. 📌 Cons: Annual expense ratio applies; no interest earnings like SGBs.
2. Gold Mutual Funds
📌 Pros: Managed by professionals, accessible via SIP. 📌 Cons: Fund management fees apply; indirect gold ownership.
3. Digital Gold
📌 Pros: Direct gold ownership without physical storage. 📌 Cons: Not regulated by SEBI; long-term storage fees may apply.
4. Physical Gold (Jewelry, Coins, Bars)
📌 Pros: Tangible asset, no market dependency. 📌 Cons: Making charges, purity concerns, risk of theft.
What Should Investors Do?
🔹 If you are a long-term investor, Gold ETFs or Gold Mutual Funds can offer better liquidity and portfolio diversification. 🔹 If you seek physical ownership without the hassle, Digital Gold could be a viable alternative. 🔹 If you already hold SGBs, you can hold them till maturity to maximize returns and tax benefits.
Final Thoughts: Is Gold Still a Good Investment?
Despite the SGB scheme’s discontinuation, gold remains a strong hedge against inflation and economic uncertainty. However, investors should carefully evaluate their financial goals, liquidity needs, and tax implications before choosing an alternative investment.
At Riddhi Siddhi Share Brokers, we help investors navigate market changes and optimize their portfolios. For expert guidance on gold investments and wealth management, contact us today!
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