SGB delivers 219% return on premature redemption date: Gold bond turns Rs 1 lakh investment into Rs 3.19 lakh

The Reserve Bank of India (RBI) has announced the premature redemption price for Sovereign SGB 2020-21 Series-III issue date June 16, 2019. According to a statement from the Central Bank, investors will have the option to redeem this SGB tranche prematurely from June 16, 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 the date on which interest is payable, as per the RBI statement.

How is SGB redemption price calculated?

The redemption value of an SGB 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, as per an RBI rule.

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

The premature redemption price of SGB 2020-21 Series-III on June 16, 2026, has been fixed at Rs 14,774 per unit of SGB, based on the simple average of the closing price of gold for the last three business days, i.e., June 11, June 12, and June 15, 2026.

The SGB 2020-21 Series-III was issued at Rs 4,627 per gram for online bonds. It will yield an absolute simple return of 219% on the date of premature redemption.

For investors who bought SGBs of the same series offline, the issue price was Rs 4,677 per gram of gold. A Rs 50 discount was available on the online purchase of the SGB.

Absolute return (gain) = Final value - initial investment
= Rs 14,774 – Rs 4,627
=Rs 10,147
Percentage return = (Absolute gain ÷ initial investment) × 100
= (Rs 10,147 ÷ Rs 4,627) × 100
= 219.30%

An absolute return of 219.30% means that if an investor had invested Rs 1 lakh at the time the Sovereign Gold Bond series was issued, the investment would now be worth approximately Rs 3.19 lakh.

Initial investment: Rs 1,00,000
Absolute gain: Rs 2,19,300
Current value: Rs 3,19,300

What is a Sovereign Gold Bonds (SGBs) series? 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 bond 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 this interest paid?

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 the investor and the last interest is payable on maturity along with the principal.