Sovereign Gold Bond (SGB) investors are facing disappointment as a recent dip in gold prices affects their returns. The decline follows a change in customs duties on gold, which was reduced significantly in the latest budget.

On Tuesday, the Union Budget 2024 introduced a cut in gold customs duty from 15% to 6%. Previously, this duty included a 10% basic customs duty and a 5% Agriculture Infrastructure Development Cess. The reduction has led to a sharp drop in gold prices on the Multi Commodity Exchange (MCX), with rates falling over Rs 4,000 to Rs 68,900. This has caused SGB prices on the National Stock Exchange (NSE) to drop by 2%-5%. For instance, SGBAUG24 decreased by 2.6% to Rs 7,275 per unit, while SGBDEC2513 saw a 5.98% drop to Rs 7,550.

Investors in the Sovereign Gold Bond Scheme 2016-17 – Series I, which was issued on August 5, 2016, are nearing their redemption phase, set for the first week of August 2024. The recent duty cut is expected to reduce their returns. This particular bond was originally priced at Rs 3,119 with an annual interest rate of 2.75%, paid semi-annually. The redemption value is based on the average closing price of 999 purity gold for the three days preceding the redemption date as published by the India Bullion and Jewellers Association Limited (IBJA).

Launched in November 2015, SGBs are government securities backed by gold and serve as an alternative to physical gold investments. Investors buy these bonds at a set price, and they are redeemed at maturity. The bonds offer a fixed annual interest rate of 2.5% and are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. With an eight-year tenure, SGBs allow for early exits in the 5th, 6th, and 7th years on interest payment dates. Investors wishing to redeem early must contact their bank or post office at least one day before the coupon payment date.

The RBI had previously announced the redemption date and price for the SGB Scheme 2016-II on March 22, 2024. For the SGB 2016 Series II tranche, issued on March 29, 2016, the final redemption date was set for March 28, 2024. This tranche was initially priced at Rs 2,916 per gram and will be redeemed at Rs 6,601, offering investors a return of approximately 126% upon maturity.

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