250% return on SGB premature redemption date: Gold bond turns Rs 1 lakh investment into Rs 3.5 lakh

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond SGB 2 2020-21 Series-II-Issue date May 19, 2020. According to a statement from the Central Bank, investors will have the option to redeem this SGB tranche prematurely from Tuesday, May 19, 2026.

The premature redemption of the SGB series will be permitted after the fifth year from the date of the issue of such gold bonds 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.


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

The premature redemption price for the SGB series due on May 19, 2026, has been fixed at Rs 15,904/per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e, May 14, May 15, and May 18, 2026.

The SGB 2020-21 Series II was issued at Rs 4,540 per gram for online buyers. It will yield an absolute simple return of over 250 % on the date of premature redemption. The issue price of the bond during this subscription period for offline customers was Rs 4,590. The government offers a discount of Rs 50 per gram from the issue price to those investors who apply online.

The absolute return comes to be Rs 15,904-Rs 4,540 = Rs 11,364 (without factoring in the interest). In percentage terms, it is 11,364 ÷ 4,540 ×100 = 250.31%

So, the current value of a Rs 1 lakh investment in the SGB at the time of its launch would be approximately Rs 3.5 lakh, reflecting a return of 250%.

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 Reserve Bank of India (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.

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.