Rising Gold Prices Trigger Questions: Is Your Sovereign Gold Bond Investment Still Safe?
With gold prices surging over 250% since 2015, investors are increasingly concerned about the Government of India’s ability to repay Sovereign Gold Bonds (SGBs) in full. But is this fear justified? Here’s a comprehensive look at how SGBs work, the government’s financial position, and whether investors should worry.
What Are Sovereign Gold Bonds (SGBs)?
Launched in November 2015 by the Narendra Modi government, the SGB scheme was designed to curb gold imports, reduce the current account deficit, and mobilize idle gold held by households. Issued by the Reserve Bank of India (RBI) in denominations of 1 gram and multiples, the scheme raised about ₹72,000 crore through 147 tonnes of gold across 67 tranches.
Although the scheme was discontinued in 2024, its impact on government liabilities continues.
SGB Liability Rises with Gold Prices
When SGBs were introduced, gold was significantly cheaper. Today, with gold prices crossing ₹9,300 per gram, the government’s total liability — if all bonds were redeemed now — exceeds ₹1.2 lakh crore.
But here’s the context:
- India’s total debt (as of March 31, 2025): ₹181.74 lakh crore
- SGB liability share: Less than 0.7% of total debt
- FY26 market borrowing target: ₹14.82 lakh crore
- First half borrowing plan: ₹8 lakh crore
Clearly, the SGB burden is small compared to India’s overall debt profile.
Expert View: SGB Repayment Default Is ‘Highly Unlikely’
According to Keval Bhanushali, Co-founder & CEO at 1 Finance, investors have little to worry about:
“SGBs are backed by the Government of India, offering a 2.5% annual interest rate and linked to gold prices. Though liabilities are rising, the sovereign guarantee ensures safety. Default risk is negligible.”
Further supporting this:
- RBI has accumulated 321 tonnes of gold, worth $20 billion, to hedge liabilities.
- The Gold Reserve Fund (GRF) grew from ₹3,552 crore (FY24) to ₹28,605 crore (FY25).
- The government has already repaid 7 SGB tranches and offered premature redemption on the 8th — demonstrating strong commitment.
What About Future SGB Redemptions?
- SGBs are set to mature gradually till 2032, not all at once.
- This staggered schedule gives the government time to plan redemptions.
- Rising gold prices may increase future liabilities, but the strong economic outlook, including India’s target of becoming a $5 trillion economy by FY2029, adds confidence.
Additionally:
- India’s bond market: Worth $2.7 trillion
- Corporate bond market: Reaches $600 billion
These indicators confirm that SGBs remain a small portion of India’s overall financial ecosystem.