With gold prices surging, the Union Budget is likely to provide a higher allocation to the Gold Reserve Fund in both the revised estimates (RE) for FY26 and the budget estimates (BE) for FY27. The fund is primarily used to meet redemption payouts under the Sovereign Gold Bond (SGB) scheme.
A key driver of the higher allocation is the large volume of SGB redemptions. Fourteen tranches of the 2017–18 series were redeemed during the current fiscal, with the final tranche maturing earlier this month. While these bonds were issued at ₹2,881–2,951 per unit, redemption prices ranged between ₹9,486 and ₹13,486. Several tranches from the FY19 series are also eligible for premature redemption, with the fifth tranche redeemed at ₹14,853 per unit.
Given that the BE for the Gold Reserve Fund in FY26 was only ₹700 crore, a substantial upward revision is expected in the RE. In FY25, allocations under RE had surged to over ₹28,000 crore against a BE of ₹8,550 crore.
Future allocations
Looking ahead to FY27, six tranches from the 2018–19 series will be eligible for final redemption, while ten tranches from 2021–22 may qualify for premature redemption. Bonds in the FY19 series were issued at ₹3,114–3,326 per unit, while FY22 issuances were priced at ₹4,777–5,109.
According to the RBI, SGB redemption prices are based on the simple average of closing gold prices of 999 purity over the previous three business days, as published by the India Bullion and Jewellers Association. With gold currently trading above ₹16,000 per gram, redemption costs are set to remain elevated.
Introduced in 2015 to curb physical gold imports, the SGB scheme saw 67 tranches issued between FY16 and FY24, with subscriptions equivalent to over 146 tonnes of gold. Bonds mature after eight years, with premature redemption allowed after five years. Interest of 2.5 per cent is taxable, while capital gains on full maturity are exempt; gains on premature redemption are taxed at slab rates.
Amid the sharp rise in gold prices and mounting redemption costs, the government has not issued fresh SGB tranches since FY24 and has virtually ruled out future issuances.
Published on January 26, 2026
