Government’s Sovereign Gold Bond Blunder

The Indian government has made a huge mistake with sovereign gold bonds and now they are trying to fix it. A Sovereign Gold Bond is basically a government security issued by the Reserve Bank of India on behalf of the Indian Government. It is essentially a substitute for holding physical gold where you buy Sovereign Gold Bond and the equivalent amount of Gold is stored by the Government in your name plus they also provide a 2.5% interest rate as well.

So when SGBs were first launched in 2015, gold was priced at just 26,000 per 10 grams and today it is over 97,000. That's why the RBI just announced optional early redemption dates for SGBs.

You may wonder why there is an early redemption offer.

Now remember, these bonds are literally paying you 2.5% annual interest plus you enjoy all the gold price appreciation that takes place and all these gains are tax-free. Now because of this, the government is facing losses that are estimated to be over 25,000 crores because of SGBs. That's why they have also stopped completely issuing new SGBs if you have noticed and now they are offering you an early redemption.

For once in financial history, the average investor like you and me is on the profitable side of a government scheme. The tables have turned and now the government is worried about how much they'll have to pay you. So keep holding on to these bonds if you want to invest in gold and earn your dividends from Sovereign Gold Bonds.