198% return on SGB premature redemption date: Gold bond turns Rs 1 lakh investment into Rs 2.98 lakh; check details

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond SGB 2020-21 Series-IV-Issue date July 14, 2020. According to a statement from the central bank, investors will have the option to redeem this SGB tranche prematurely from July 14, 2026. The premature redemption of the SGB series will be permitted after the fifth year from the date of issue of such gold bonds on the date on which interest is payable, as per the RBI statement.

How is SGB redemption price calculated?

The redemption value will be calculated based on the simple average closing price of the gold of 999 purity published by the India Bullion and Jewellers Association (IBJA) for the preceding three working days, as per an RBI rule.

What is the premature redemption price for SGB 2020-21 Series-IV?

The premature redemption price due on July 14, 2026, has been fixed at Rs 14,307 per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e., July 9, July 10 and July 13, 2026.

The SGB 2020-21 Series-IV was issued at Rs 4,802 per gram for online bonds. It will yield an absolute simple return of nearly 198% on the date of premature redemption.

The absolute return comes to be Rs 14,307 -Rs 4,802 =Rs 9,505 (without factoring in interest). In percentage terms, it is 9,505÷ 4,802 ×100 = 197.94%

So, the investment has generated an absolute return of Rs 9,505, or about 198% (excluding the interest earned).

For investors who bought SGBs of the same series offline, the issue price was Rs 4,852 per gram of gold. A Rs 50 discount was available on the online purchase of the SGB.

A return of 197.9% means that an investment of Rs 1 lakh in this Sovereign Gold Bond (SGB) series at the time of its issuance in 2020 would now be worth about Rs 2.98 lakh (Rs 2,97,900), based on the current redemption price. This does not include the 2.5% annual interest paid on the original investment amount, which SGB investors receive separately.

Important FAQs on SGBs as per the RBI website

What is a Sovereign Gold Bond (SGB)? Who is the issuer?

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds are redeemed in cash on maturity. The Bond is issued by the Reserve Bank of India (RBI) on behalf of the Government of India.

What is the rate of interest most SGBs provide and how is the interest paid?

Most bonds bear interest at the rate of 2.50 per cent (fixed rate) per annum on the amount of the initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest is payable on maturity along with the principal.

When are SGB customers issued a certificate of holding?

SGB customers are issued a certificate of holding on the date of the issuance of the SGB. The certificate of holding can be collected from issuing banks/SHCIL offices/post offices/designated stock exchanges/agents or obtained directly from the RBI on email, if an email address is provided in the application form.