Chennai: The Centre's ambitious sovereign gold bond (SGB) scheme, rolled out in 2015 with great expectations to cut the demand for physical gold and shift a part of the imported gold into financial savings, is almost a no-show.
After 33 tranches in four years, just about 28.6 tonnes of gold has been bought by investors through the SGB scheme. This is not even one per cent of the gold demand of these four years.
The Centre had introduced SGB scheme in November 2015 in order to provide an alternative investment avenue for gold investors. Prime Minister Narendra Modi had launched the scheme, along with two other gold related schemes; the gold monetisation scheme aimed at unlocking 20,000 tonnes, or $800 billion worth of gold lying idle in households and temples; and the national gold coin minted in India with the Ashok Chakra engraved on one side and Mahatma Gandhi on the other side.
There have been 33 tranches of SGB since, with three to six tranches issued every year. However, in 2017-18, 14 tranches were issued. Across all the tranches a total of 28.644 tonnes of gold has been purchased.
When compared with the annual consumption of around 750 tonnes, SGBs account for just 0.9 per cent of the total consumption in these four years.
From a returns' standpoint, sovereign gold bond is the best instrument to invest in gold, as it provides an interest of 2.5 per cent over and above the price appreciation of the metal. The interest portion of the returns is taxed, but the capital gains are not taxable. The bonds have a tenure of eight years, with an exit option in the fifth year.
According to Anil Rego, CEO, Right Horizons, SGB is an instrument for the long-term investor. However, for an investor who wants to take advantage of the price appreciation and exit in between, SGBs have not been offering much help.
"There are liquidity issues and finding a buyer is difficult if the investor wants to exit the bond in between. Government has also allowed the trading of the bonds in the exchanges. But that has not helped much," said Rego.
He finds that the awareness about the bonds itself is very limited among gold buyers. "SGBs were introduced at a time when the gold price was subdued and investors were not quite keen on betting on the metal,' he said.
However, compared to gold exchange traded funds (ETFs), which have a total asset under management (AUM) of about 13 tonnes valued Rs 5,000 crore, SGBs are placed better. Gold ETFs had seen the total assets moving up to Rs 12,000 crore in 2011-12....