The first SGB issued in Nov 2015 has given 128% return in 8 years. Tax-Free

Bonds
1

The first ever SGB - Sovereign Gold Bonds 2.75% NOV 2023 Tr-I was issued on 26 Nov 2015, listed as SGBNOV23 on NSE and 800251 on BSE, with ISIN IN0020150085.

It paid an interest of 2.75% every 6 months until it matured on 30 Nov 2023.

SGB 2015-I Patriculars Amount (Rs) Taxability
Issue Price on 26 Nov 2015 2,684.00 No
Interest @2.75% every 6 months = 36.91x16 590.56 As per slab
Redemption Price on 30 Nov 2023 6132.00 Tax Free
Headline Return 128.46%
XIRR (for 30% tax bracket) 12.28%

How did it fare compared to other assets or mutual funds? From the point of view of absolute returns, XIRR, cost (brokerage, TER) and taxability.

6 Likes
2

Among the ones I track: So XIRR (Pre Tax) of SIP and lump-sum in the following Indices from 01/05/2015 are as follows:
Nifty 50 - 14.86% SIP and 12.57% Lumpsum
Nifty Midcap 150 - 21.03% SIP and 18.5% Lump-sum
Nifty Small Cap - 19.78% SIP and 15.25% Lump-sum
So Post Tax, NIFTY 50 would fetch lesser returns than SGB.
I have not really been tracking other Asset classes like Crypto or Real Estate.

1 Like
3

Not an expert, since gold is linked to USD, the currency depreciation could have its effect as well.

on 26.11. 2015 INR to USD was 66.36.
On 30.11.2023 INR to USD was 83.34

The currency depreciation was 25.58%.

How much of headline return of 128.46% as the author says can be contributed to currency depreciation of INR.

I could be totally wrong. Can we really compare Gold with other asset classes as this is mainly used as a safe haven for diversification. Found an article which compares Gold return vs Nifty

3 Likes
4

I have a question for the experts here.

RBI conceived the idea of Sovereign Gold Bond (SGB) with the underlying thought that when an investor invests in these bonds he will not buy physical gold. This will help in reducing gold imports and the entire cycle that comes with it i.e. buying gold with the depreciating rupee, fiscal deficit, etc.

Now that the first SGB has completed its full life cycle,

  1. Were physical gold imports reduced or increased due to SGB in the last 8 years?
  2. Do Indians continue to buy gold in physical form compared to the pre-SGB era?
  3. How well did the Govt utilize the SGB amount in the 8-year lock-in period? Did it earn enough to repay the 128% return to the investors at maturity? Is this sustainable for the Govt?

P.S.
Following are the SGBs that will mature in 2024.

Symbol NSE Symbol BSE Interest per annum Interest payment dates Maturity Date Issue price
SGBFEB24 SGB2016I 2.75% 8th February and August 08-Feb-24 2600
SGBMAR24 SGB2016II 2.75% 29th March and September 29-Mar-24 2916
SGBAUG24 SGBAUG24 2.75% 5th August and February 05-Aug-24 3119
SGBSEP24 SGB2016IIA 2.75% 30th September and March 30-Sep-24 3150
SGBNOV24 SGB2016IIIA 2.50% 17th November and May 17-Nov-24 3007
5

The following graph shows India’s love for the shining metal. The question is, where does SGB glitter in between?

Statistic: Value of gold imported into India from financial year 2011 to 2023 (in billion Indian rupees) | Statista
Find more statistics at Statista

1 Like
6

I don’t think any of these Qs makes sense.
Here’s my take on them…

In one sense, Obviously yes. Every rupee in SGB is one less rupee in actual gold.
Practically, not sure if one can accurately measure…

  • …what impact SGB itself has had in encouraging investment into SGB.
  • …what could have happened if SGB did NOT exist.

Again, obviously yes.
What might be mildly interesting is the volume of actual gold being purchased by individuals.
But what’s the point? Is the aggregate of individuals’ gold purchases even significant / comparable to the volumes of the gold being traded for other purposes (industrial, financial, …)?

That’s not how sovereign debt works.
Govt. isn’t into earning directly to repay its debt.
Rather economic growth is the target.
In fact increasing Govt. debt might even be desirable as a “shock absorber” under certain scenarios.

All things considered,
IMHO, the existence (and adoption) of SGBs
has established an additional lever for fine-grained control over
the economic impact of Gold to the nation’s economy.

1 Like
7

Is there a way to find out how much money Govt raised yearly through the SGB issue, from 2015 till today? And then if we plot the data against the graph of annual physical gold imports, the comparison may tell whether the ‘Govt’s intent of reducing physical gold imports’ by launching SGB as an asset class was successful.

P.S. I am invested in SGB and this analysis is to understand it in more detail.

1 Like
8

That comparision doesn’t really explain much
as the demand for gold during 2015-2022 in the absence of SGB is not known.

Sure, it can be estimated/forecasted based on historical demand for gold before 2015,
IMHO, such a forecast is unlikely to be accurate due to the unforeseen circumstances (geo-political unrest, pandemic, lockdowns, AI-boom, …) over the past few years.

You can find quite a few details in the RBI circulars on SGB.
(eg. the data release on SGB.)

The Bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of initial investment.
Interest will be credited semi-annually

The bonds offer 2.5% / annum now (not the 2.75% / annum of the initial tranche).
So, that needs to be factored into the calculations to evaluate the current SGBs.

Interest @2.75% every 6 months = 36.91 x 16 = 590.56

More importantly, this calculation looks incorrect.
Note that even though the interest payment is semi-annual (every 6 months),
the interest quoted in for the whole year (not every 6months).
i.e. half of the annual interest is paid out every 6 months.

Headline Return 128.46%

This is simply based on the capital-gains due to appreciation of Gold over the past 8 years.
This excludes the returns from interest.

This gain due to appreciation of the price of gold
wasn’t something that was known upfront,
nor was/is it guaranteed.

This return of 128.46% over 8 years amounts to 10.88% compounded annually.
(…and the additional semi-annual interest payments
are the additional fixed-returns available on SGBs
apart from the variable gain/loss due to price of gold)

Regarding SGBs, here’s another question that comes to mind -
How is it decided when to issue a new tranche/series of SGB ?

9

I have a question. If the central bank buys the gold by clubbing the purchases of independent customers, the import value remains the same right?

10

SGB is not backed by actual gold.
It is backed by a sovereign guarantee (simialr to GSECs) to pay back upon redemption, the value of gold in INR.

However, unlike GSECs,
the value of SGBs (in the secondary market, and upon redemption)
depends on the value of the gold in the market.

This old topic-thread has few more details and discussion around SGBs

1 Like