The last tranche of SGB was opened for subscription from September 1 to 9, and the date for issue of securities to the applicants was kept on September 23. But then, the SGB offer from government attracted so many applications that the issue date of the securities has been shifted from September 23 to September 30.

According to reports available, already over 2 lakh applications have been received by banks and post offices and more are pouring in from the field offices which are currently being uploaded. These numbers are likely to go-up further as the receiving offices were still in the process of uploading information of the huge rush of applications received on the last day.

To enable smooth uploading of applications into RBI’s E-Kuber system, particularly by the post offices, it had become clear that more time was needed and it was thus decided to shift the issue date.

The sheer volume of applications for these bonds mark a shift in the mind set. Earlier, nobody trusted with a paper for his or her purchase of gold. The buyer wanted to have physical gold in possession for the satisfaction of buying gold. Now the buyer is satisfied with a piece of paper instead of physical gold. This needs to be taken note of.

The sovereign gold bond (SGB) scheme appears to have become a favourite of investors. As recently as about four years back, run-away rise in physical demand for gold and imports had created a crisis in the country’s external payments liabilities towards the end of the UPA government regime. With every rise in national income (GDP growth) gold demand was rising and on average 1000 tonnes of gold was being brought into the country every year.

Gold imports had peaked around March/April 2013 after which it fell drastically. However, even when quantitative restrictions were imposed on imports, physical gold brought in spiked roughly between August 2013 and November 2014. It had become clear that some other methods would have to be used for containing the social urge for gold.

It was a big waste. After all, we were blowing up our savings by importing a commodity which would lie dormant in the vaults yielding no returns except some capital appreciation on sales of the stock. And nobody would sell gold unless in dire straits. For the nation it was nothing but calamity. The same amount spent in bringing gold from overseas could easily be used for building roads, bridges or at least schools.

Total subscription from the investing public is already set to cross Rs 3000 crore. The ministry is however expecting this to touch Rs 3500 crore once the fifth tranche is fully taken into account.

By launching the SGBs it has been possible to convert the physical demand for gold into a financial demand, that is, through de-materialisation of gold demand and turning it into a financial product. Finance minister Arun Jaitley had promised to offer gold bonds to the public in his first budget.

As a result, after launch of the SGB, physical imports have gone down and the proceeds of subscription to sovereign gold bonds could be utilized by government for public sector investment in, say, infrastructure creation.

The next tranche of SGB Scheme is expected around the third week of October, 2016, prior to Diwali, with additional features to attract more buyers. The amount realised through the 5th Tranche of Sovereign Gold Bond (SGB) Scheme, is expected to cross Rs 820 crore, representing around 2.37 tonnes of gold.

The aggressive marketing of the product by the centre, including through its receiving offices, namely Banks, Post Offices, NSE and BSE helped in mobilizing such encouraging response.

SBI has received subscription of Rs 245 Crore and Bank of India at Rs 56 Crore subscription were the top performers. The Post Offices did their bit by attracting maximum number, around 22,000, applicants. The total mobilisation by Post Offices is expected at around Rs 15-20 crore.

The issue price of the Sovereign Gold Bond in 5th tranche worked-out to a still higher level Rs 3,150 per gram of gold based on the average of closing price of gold of 999 purity for the week August 22 to 26, 2016, as published by the India Bullion and Jewellers Association Ltd. (IBJA).

In pursuance of the announcement in the Union Budget 2015-16, the Sovereign Gold Bond (SGB) scheme was launched as an alternative mode of investment to physical gold in November 2015. The aim of SGB is to reduce demand, including through imports, for physical gold, and in process reduce India’s Current Account Deficit.

Three previous tranches of SGB scheme were floated in 2015-16. In the current financial year two tranches have been launched (4th tranche from July 18-22, 2016 and 5th tranche from September 01, 2016). The total subscription in first 4 tranches was Rs 2239 Crore corresponding to 7.85 tonnes of gold. The highest mobilisation was Rs 921 Crore in the 4th tranche when the issue price was Rs 3119 per gram of gold.

The sustained and encouraging response of the investors to the SGB Scheme (Series-I and series-II) of 2016-17, indicates that the product has come of age, and is increasingly becoming popular amongst the general public due to advantages it offers over physical gold, namely use as collateral for loans, Capital Gains Tax exemption on redemption, zero risk of theft and impurities associated with handling of physical gold; tradability through Stock Exchanges and also availability in DEMAT and paper form. The product, in addition, earns an interest rate of 2.75 per cent per annum, semi-annually payable on initial investment. (IPA Service)