212% return on SGB premature redemption date: Gold bond turns Rs 1 lakh investment into Rs 3.12 lakh

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond (SGB) 2020-21 Series-VIII-Issue date November 18, 2020. According to a statement from the Central Bank, investors will have the option to redeem this SGB tranche prematurely from Monday May 18, 2026.

The premature redemption of the SGB series will be permitted after the fifth year from the date of the issue of such gold bond series on a date on which interest is payable, as per the RBI statement.

How is the SGB premature redemption price calculated?

The premature redemption value of an SGB is calculated based on the simple average closing price of 999 purity gold 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-VIII?

The premature redemption price for the SGB series due on May 18, 2026, has been fixed at Rs 16,012 per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e, May 13, May 14 and May 15, 2026.

The SGB 2020-21 Series-VIII was issued at Rs 5,127 per gram for online buyers. It will yield an absolute simple return of 212.30% on the date of premature redemption. The issue price of the bond during this subscription period for offline customers was Rs 5,177.

The absolute return comes to be Rs 16,012 -Rs 5,127 = Rs 10,885 (without factoring in the interest). In percentage terms, it is 10,885÷ 5127 ×100 = 212.30%

A 212% return means a Rs 1 lakh investment in the SGB will become:
Profit: Rs 2.12 lakh
Total value: Rs 3.12 lakh (approximately)

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 will be redeemed in cash on maturity. The bond is issued by the RBI on behalf of the Government of India.

What is the rate of interest SGBs provide to their investors and how is it paid?

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

What are the minimum and maximum limits for SGB investment?

Sovereign gold bonds are issued in denominations of one gram of gold and in multiples thereof. The minimum investment in the bonds allowed is one gram of gold, while the maximum limit is 4 kg gold for individuals. For Hindu Undivided Family (HUF), the maximum limit is 4kg of gold, while it is 20 kg for trusts and similar entities notified.