Sovereign Gold Bonds and what happened to them

For about nine years, India had the best retail gold product in the world. This chapter is what it was, and why it stopped.

What an SGB is

A government security denominated in grams of gold. You pay cash at issue, the bond records a quantity of gold, and at maturity you are repaid in cash at the then-prevailing gold price.

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

You never hold gold. You hold a government promise indexed to gold's price — which, for an investor who wanted the price and not the metal, is strictly better.

The terms

Tenor	8 years
Early redemption	After the fifth year, on coupon payment dates
Interest	2.50% fixed per annum on the amount of initial investment, paid semi-annually
Minimum	1 gram
Maximum	4 kg for individuals, 4 kg for an HUF, 20 kg for trusts, per fiscal year
Tradability	On exchanges, if held in demat form; also transferable

Two details on the ceiling that catch people out: in a joint holding the limit applies to the first applicant, and the annual ceiling includes bonds bought in the secondary market, not only those subscribed at issue.

The 2.50% is the part that makes it extraordinary. Gold produces nothing — chapter 1's defining fact. An SGB produces 2.50% a year on top of the gold price. There is no physical form, no ETF and no fund that can do this, because the interest is not coming from the metal. It is coming from the government.

Note the base: the interest is on the amount of initial investment, not on the current value. If gold doubles, the coupon does not.

The tax treatment

The FAQ states it plainly:

Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long terms capital gains arising to any person on transfer of bond.

So: interest taxable, capital gain on redemption exempt for an individual. Since gold's return is almost entirely price change, exempting the capital gain exempts nearly the whole return.

A caution that now applies to every tax statement in this course. That passage cites the Income-tax Act, 1961, which was repealed with effect from 1 April 2026 and replaced by the Income-tax Act, 2025. The FAQ itself is marked as updated in February 2019. The Insurance and Deposits subjects met the same pattern — official pages carrying citations to repealed legislation — so verify the current treatment against the current Act before relying on it, particularly the distinction between redeeming at maturity and selling on the exchange, which have never been treated identically.

What happened

RBI's own scheme page lists no tranche after Sovereign Gold Bond Scheme 2023-24 Series IV. The issuance series simply stops there, and the forms section tops out at the same point.

Why it stopped is visible in the design. Work out what the arrangement costs the issuer:

• The government raised money at the gold price prevailing at issue
• It pays 2.50% a year on that amount throughout
• At redemption it owes the gold price then, in full
• And for an individual, the gain is exempt from capital gains tax

So when gold rises sharply, the government repays far more than it borrowed, having paid interest throughout, and collects no tax on the investor's gain. It is a borrowing whose cost rises with an asset price the borrower does not control.

That is a fine deal for the saver and an expensive one for the exchequer — and the sharper gold's rise, the more expensive it becomes. A scheme with that structure is a bet by the issuer that gold will not run away, and it is not surprising that issuance paused after a period in which it did.

What this means in practice:

Existing bonds are unaffected. They run to their terms, pay their coupons, and redeem as contracted. A government security does not change because the scheme stopped.

You can still buy them on the exchange, from holders who want out — but at a market price, with the liquidity the exchange happens to offer, which for individual tranches can be thin.

Buying in the secondary market is not the same deal. The 2.50% is calculated on the original issue amount, so a buyer paying a higher market price today earns that coupon on a smaller base relative to their outlay. And the premium or discount to the underlying gold value is yours to assess. The product's advantages survive; the price at which you obtain them does not come guaranteed.

Working the problem

Who bears the cost, and how long could it last?

The cost falls on the government, which is to say the exchequer. Trace the cash: it receives the issue price per gram, pays 2.5% annually on that sum, and at redemption pays the prevailing price per gram. If gold has doubled, it repays twice what it raised, having also paid roughly 20% in cumulative interest over eight years, and forgoes the capital gains tax it would have collected had the saver held gold another way.

The implicit position the government took is that of a borrower whose liability is linked to gold. That is sustainable while gold rises slowly or falls; it becomes expensive exactly when gold does what gold-buyers hope it does.

So the scheme's generosity and its fragility are the same feature. It was attractive to savers because it transferred the gold price risk to the state and paid them for the privilege, and that is precisely what made it hard to keep issuing.

What that implies more generally, and it is the transferable lesson: when a product looks too good relative to its alternatives, identify who is on the other side and what it costs them. If the answer is a government or an institution bearing an open-ended risk for a fixed fee, the product is likely to be withdrawn, repriced, or capped before you can rely on it indefinitely.

The practical consequence for a saver today: do not build a plan around a product that is not being issued. Chapter 2's ranking stands, with the honest amendment that first place is now conditional on finding an existing bond at a sensible price rather than on simply subscribing.

The point

A Sovereign Gold Bond is a government security denominated in grams of gold: eight-year tenor, early redemption from the fifth year, 2.50% a year on the initial investment, a four-kilogram annual ceiling for individuals that includes secondary-market purchases, and exemption from capital gains tax on redemption for an individual. The coupon is what no physical or paper form can match, because it comes from the government rather than the metal. RBI's own tranche listing stops at 2023-24 Series IV, and the reason is legible in the design — the issuer repays the prevailing gold price, having paid interest throughout and collected no tax on the gain. Existing bonds are unaffected and still trade, but at a market price that does not come with the original terms attached.