Gold bond delivers 377% return on premature redemption: Check SGB price, premature exit date and how to redeem

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign Gold Bond SGB 2018-19 Series-VI-Issue date February 12, 2019. According to a statement from the Central Bank, investors will have the option to redeem this SGB tranche prematurely from February 12, 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 the rule.

What is the premature redemption price for SGB 2018-19 Series-VI?

The premature redemption price due on February 12, 2026, has been fixed at Rs 15,615 per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e., February 9, 10 and 11, 2026.

How did the government arrive at this premature rate?

Here’s the calculation:
February 11, 2026: Rs 15,732
February 10, 2026: Rs 15,626
February 9, 2026: Rs 15,488
Total: 15,732 + 15,626 + 15,488 = 46,846
Average: 46,846 ÷ 3 = Rs 15,615.33
The redemption price, hence, is Rs 15,615 per unit.

The SGB 2018-19 Series-VI was issued at Rs 3,276 per gram for online bonds. It will yield an absolute simple return of nearly 377% on the date of the premature redemption.

The absolute return comes to be Rs 15,615 -Rs 3,276 = Rs 12,339 (without factoring in the interest). In percentage terms, it is 12,339 ÷ 3,276 ×100 = 376.64%.

A 377% return means if a person invested Rs 1 lakh in this SGB series at the time of its issuance in 2019, the value of that amount would be nearly Rs 4.77 lakh. This amount doesn’t include a 2.5% annual interest gold bond holders get on the principal investment amount.

For investors who bought SGBs of the same series offline, the issue price was Rs 3,326 per gram of gold. A Rs 50 discount was available on the online purchase of the SGB.

SGB interest payment
SGBs offer an interest rate of 2.50% (fixed rate) per annum on the initial investment amount. The interest amount is credited semi-annually to the bank account of the SGB investor. The last interest instalment is payable on maturity along with the principal.What do investors need to do for the premature redemption of SGBs?

Investors holding SGBs should review the redemption schedule carefully. Some of the key actions include:
a) Identify the tranche to which your bonds belong by checking the issue date.
b) Ensure that your request for premature redemption is submitted by the deadline mentioned in the schedule.

SGB details
SGBs offer the dual benefit of gold price appreciation and a fixed annual interest rate, paid semi-annually. While investors can hold them till maturity to enjoy long-term, tax-free gains, some can also prefer to redeem early to meet liquidity needs.