Gold is a precious metal for ages and its value only increased over time across the globe. For Indian households, the gold investment is not only about buying the metal but has an emotional value attached to it. Due to its stability, reliability, and non-volatile nature, people find it the best asset to invest in from the early growth of civilization.
This asset is never devalued and is free of depreciation. But in India, this investment is more in physical form than electronic which put constraints on the country’s growth when seen in the light of the Indian economy. The physical hoarding of gold by individuals increases the demand for gold imports and widens India’s Current Account Deficit that brings pressure on the economic growth of the country.
To keep a check on this physical accumulation of gold in Indian households and to reduce the gold import share significantly, the Government of India launched the Sovereign Gold Bond scheme in 2015. It has brought a paradigm shift in gold investment as an instrument of financial saving rather than a physical purchase. These bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India and eliminate the risk and cost of holding the physical gold investment.
The 5–7-year lock-in period for these safe and secure bonds benefits investors with tax-free maturity and ease of proceedings in the Demat format. The lock-in protects investors to handle the mid-term price volatility of gold on the domestic and global market. It is a wise investment even for India’s conservative investors as it is backed by the government of India through the Gold Reserve Fund against the risk of change in gold prices. This must reduce the government’s borrowing cost and route the benefit towards the well-being of Indian citizens in form of public welfare schemes.
The prices of gold have steadily increased over time and possess long-term purchasing power even in times of crisis like Covid 19 pandemic, war, etc. Thus, these bonds can also be used as collateral for loans when needed. Its trade on recognized Indian Stock Exchanges, Banks, Post Offices, Non-Banking Financial Companies, etc brings ease in investment and so increases its popularity over physical gold buying for Indian households.