228% return on SGB premature redemption date today: Gold bond turns Rs 1 lakh investment into nearly Rs 3.28 lakh

The Reserve Bank of India (RBI) has announced the premature redemption price for (SGB 2021-22 Series VI - Issue date September 7, 2021). According to a statement from the RBI, gold bond investors will have the option to redeem this SGB tranche prematurely from September 7, 2026.

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

How is the SGB redemption price calculated?

The gold bond series’ redemption value is 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, the RBI statement further said.

What is the premature redemption price for SGB 2021-22 Series VI - Issue date September 7, 2021?

The premature redemption price due on September 7, 2026, has been fixed at Rs 15,334 per unit of the SGB, based on the simple average of the closing price of gold for the last three business days, i.e., September 2, September 3 and September 4, 2026.

The SGB 2021-22 Series VI was issued at Rs 4,682 per gram for online bonds. It will yield an absolute simple return of nearly 228% on the date of the premature redemption.

The absolute return is Rs 15,334 - Rs 4,682 = Rs 10,652. (without factoring in the interest). In percentage terms, it is (₹10,652 ÷ ₹4,682) × 100 = 227.50%

So, the percentage return is approximately 228%.

A nearly 228% absolute return means that an investment of Rs 1 lakh in this SGB series at the time of its launch would be worth nearly Rs 3.28 lakh, excluding the interest earned on the principal.

For investors who bought SGBs of the same series offline, the issue price was Rs 4,732 per gram of gold. A Rs 50 discount was available on the online purchase of these SGBs.

Important frequently asked questions (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, and the bonds are redeemed and paid back to investors on maturity. The gold bond is issued by the RBI on behalf of the Government of India.

What is the rate of interest SGB investors get on their investment and how is the interest paid?

The bonds bear interest at the rate of 2.50% (fixed rate) per annum on the amount of the initial investment. However, SGBs issued in FY 2015-16 offered an interest rate of 2.75%.

Interest is credited semi-annually to the bank account of an investor, and the last interest is payable on the bond’s maturity along with the principal.