Redemption under the government’s sovereign gold bond scheme is expected to jump five times from the FY23 level to ₹1,500 crore next fiscal, officials said. Investors would resort to greater redemptions next fiscal to take advantage of the elevated gold prices once the initial lock-in period is over for many of them.
The scheme was launched in November 2015, as part of the government’s efforts to trim physical gold demand. Gold bonds have an eight-year tenor, with an exit option for investors from the fifth year.
Gross gold bond issuances by the government are expected to be lower at ₹11,200 crore in FY24 from an estimated ₹12,000 crore this fiscal and ₹12,991 crore in FY22, a finance ministry official told ET.
Having scaled a peak of ₹16,049 crore in the pandemic year of FY21, gold bond issuances have since been moderating, as investors shift their attention to more attractive investment products as economic growth recovers.
This shift could be more discernible in FY24, as a rise in the repo rate by 250 basis points since May 2022 has made a whole lot of instruments, including select fixed deposits, more attractive.
Gold prices (24 karat with 999 purity) have jumped over 7% in just the past two months to settle at ₹57,038 per 10 grams. While early investors in the scheme will reap the benefits, as they had invested when gold rates were much benign, the current level of elevated prices will discourage new investors, industry experts say.
The government expects net collection under the scheme to ease to ₹9,700 crore in FY24, compared with an estimated ₹11,700 crore this fiscal on account of greater redemption, said the official quoted earlier.
Analysts said a combination of factors will contribute to lower gold bond issuance next fiscal.
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